Now that you can easily find market imbalance on the chart, you can move forward to follow three essential steps to identify supply and demand zones.
1. Spot the Current Price
2. Find ERCs/Imbalances
3. Identify Origin of the Price Movement
1. Spot the Current Price
First, you need to spot the current price on the chart. Then, look at the left side of the chart and find a big strong lineup of candles either moving up or down. Typically, supply zones show upward movements, and demand zones show downward movements.
2. Find ERCs/Imbalances
Now, focus on the left area of the chart to find the imbalances. You can identify these candles by their long bodies with little to no wicks. Remember that if any candle has an equal size of wicks and body, it is not an imbalance. This is how imbalances look on a price chart:
3. Identify Origin of the Price Movement
Finally, you need to identify the origin of the price movement on the chart. You will find this by seeing a âbalance of buyers and sellers creating a zone.â As in the below chart, the price rallied up with small-sized candles, balanced for some time, and then dropped downward by creating a big move/imbalance.
