Figure 31: Reward-to-Risk Ratio The distance from the zone: A stronger imbalance is implied if there are comparatively longer and bigger consecutive candles in one direction. In the case of an uptrend, there should at least three bull candles combined with at least one or more extended candles; in the case of a downtrend, there should be at least three bear candles combined with at least one or more extended candles from the origin of the imbalance point/zone. The quality level will not be valid if there are mixed candles of bears and bulls. Figure 32: Distance from the Zone
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Figure 33: Distance from the Zone (Invalid Zone) Time spent on the level/zone: Zones are categorized as long and short. If there are several candlesusually more than fourit is called a long zone, and if there are fewer than four candles at the origin of imbalance, it is called a short zone. A short zone is considered more effective than a large zone, and should therefore draw our attention. Figure 34: Time Spend on the Level The freshness of the zone: Freshness can be identified by looking to the left from the current price, to see whether the price has hit a plateau or not. Normally, the quality level will be less valid if the price touches a buy zone more than one time. We consider a quality level valid if it is fresh. In Figure 35, point 1 is fresh, where as point 2 is not fresh. Figure 35: Fresh and not fresh zone CHAPTER SUMMARY The chapter summary is expressed in the table below.
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Parameters Name of the zone Type of zone Reward-to-risk ratio Distance of the zone Time spend at the level/zone Freshness of the zone Description Supply or demand Drop-Base-Rally, Rally-Base-Drop, Drop-Base-Drop, Rally-Base-Rally At least 3:1 for swing trade and 2:1 for day-trading Long or short Long time or Short time Fresh or not fresh (touching) In the next chapter, we are going to look at how a confluence of factors support supply and demand zones. Confluence factors provide more confidence to traders, and can be indicators for trade success. Chapter Six
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CONFLUENCE FACTORS FOR DEMAND AND SUPPLY ZONES Traders incorporate technical indicators along with a main strategy to get additional confirmation about whether to buy or sell currency pairs. Technical indicators are a series of data pointsincluding the prices at opening or closing, the low and high prices in a given period, or a combination of these over a period of timeand apply formulas to them to derive certain outputs. One good four high prices, say example 20+20+10+30=20. This would create one data point. Technical indicators are a series of data points that provide meaningful information to traders. For example, a ten-day moving average and a fifty-day moving average crossover might reveal a changing trend. Traders may decide to go short instead of taking a going long position on a given currency pair based on these indicators. is
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