Introduction
Supply and demand zones are crucial areas on a price chart where significant buying or selling pressure leads to potential reversals or market movements. These zones form the foundation for many trading strategies, but identifying them accurately can often be subjective, leading to inconsistent results.
An efficient method to recognize these zones is by focusing on blocks or price consolidations that precede impulsive market movements. These blocks indicate institutional interest, where large market participants place orders that create an imbalance between supply and demand. Identifying these blocks is key to understanding where the price is likely to react in the future.
In this article, we will outline a precise, rule-based method for identifying these blocks, eliminating subjectivity in the process. By applying these rules, traders can not only execute backtests more effectively but also refine their strategies based on clear and repeatable criteria. This structured approach allows for quicker and more reliable improvements in trading performance.
Preview
In this article, we will dive into how to clearly identify the supply and demand zones by removing the discretion typically involved in this analysis. This approach allows traders to backtest their strategies more effectively, verifying profitability and making improvements when necessary, whether manually or through automated tools. We will focus on how to recognize the blocks that form these zones in a structured and rule-based way, providing clarity in your trading decisions.
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