The power of supply and demand imbalances

It never ceases to amaze me how powerful bigger timeframe imbalances are and how prices can react to them no matter how old these imbalances are. There is a clear example of a strong supply imbalance on the British Pound versus the New Zealand Dollar (GBPNZD) Forex cross-pair.

A very strong monthly supply imbalance created around a 2.09 price level last May 2016. It took 44 months for the price to retrace to it; that’s quite a lot of time. This is the type of imbalance you don’t want to trade against. These imbalances are not supported and resistance; supply and demand imbalances have nothing to do with support and resistance, even though some times imbalances contain classic support and resistance price levels used by so many traders.

Take a look at GBPNZD Forex cross-pair monthly timeframe supply and demand technical analysis below. If you are trading intraday or even scalping Forex cross pairs, you will lose all of your trades since you won’t be aware of the strength of the imbalance that took control.

GBPNZD Forex cross pair supply level

Taking a look at the bigger timeframe imbalances will add extra context to Forex trading strategy and will keep you alerted of such strong imbalances that could cause havoc in your trading account. Going long using H1, M30, and smaller timeframes against such a strong imbalance is suicidal.

Trading intraday and scalping Forex is fine for those doing it, there is no doubt that trading lower timeframes can be profitable, but we highly recommend you to keep track of strong imbalances on the bigger timeframes because if you do, you will be avoiding many losses. If you were long biased on GBP/NZD Forex cross and had some losses, now you know why you had those losses.


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