Imbalance – Confirmation factor for the strength of the supply and demand zone

Imbalance – Confirmation factor for the strength of the supply and demand zone
Imbalance – Confirmation factor for the strength of the supply and demand zone

Imbalance in forex is the area that often appears on the chart. These areas clearly show the imbalance in supply and demand when prices go up or down sharply. If we understand the meaning of these areas and know how to define them, it will be easier to make profits when accurately predicting the next movement of the market.

Imbalance definition

Imbalances are areas where there are too many buy or sell orders that cannot be filled, or because the supply volume is more than the demand volume and vice versa.

If the area has more supply than demand for sellers to complete the transaction, there must be buyers. That’s why we see prices often fall sharply and continuously to find where there are many buyers to be able to complete sell orders and find the balance.

Especially in the time when there is the participation of large organizations in the market, the imbalance is more clearly shown by the huge difference between supply and demand.

You can see the chart below:

Imbalances
Imbalances

The points marked on the chart are imbalances.

The imbalance is mainly one of the big reasons for price movement. The larger the imbalance, the larger the price movement will be.

Now we will learn how to identify these areas on the chart.

How to identify the imbalance on the chart

The supply and demand zones on the chart are the areas that show the strongest imbalance. When the supply and demand imbalance is strong, the price will move right after forming the supply and demand zone without staying here for long.

So in areas of supply and demand with a strong imbalance, you will find a gap between the first candle (which is the candle before the time when the supply and demand zone forms) and the 3rd candle. A gap is created because the supply (for the demand zone) or the demand (for the supply zone) is small.

How to identify the imbalance
How to identify the imbalance

If the first candle and the third candle have a gap where the price only goes through once and quickly, we call it the imbalance. If this occurs in the supply and demand zone, it shows the strength of these two zones.

Why the imbalance appears

In the Forex market, the daily trading volume is huge because the market often has the participation of banks and large organizations. Their volumes are large so they often split the volume to be able to enter at a good price to maximize profits. From there, order blocks are formed on the market.

Imbalance on GBP/USD
Imbalance on GBP/USD

These order blocks are supply and demand zones but have been refined. These are price zones that show the presence of large organizations very clearly. So imbalances also often appear after order blocks are formed as you can see in the chart below.

Imbalance on EUR/USD
Imbalance on EUR/USD

A supply zone is formed, which is also an order block. And after this zone formed, we see the price drop sharply in the next candles, that is the thing we’re looking for. The price can then bounce back and react strongly to this zone and then reverse. It can be said that the imbalance has greatly supported the order block. And we need to make trades around this zone because it will have a higher probability of winning.

Conclusion

Understanding how to identify the imbalance is an advantage in trading. It shows us more clearly which side is in control at the moment. From there, the orientation for the trading strategy will be better.

Join the Olymp Trade Club Signal Group: https://t.me/olymptradeclub19

Imbalance – Confirmation factor for the strength of the supply and demand zone
4.3 (86%) 26 reviews

LEAVE A REPLY

Please enter your comment!
Please enter your name here