Skip to main content

Validating Supply and Demand Zones with Secondary Evidence

Post a Comment

Levels on Top of Levels Concept

Levels on Top of Levels Concept

Levels on Top of Levels



In the world of supply and demand trading, we're constantly looking for the "fingerprints" of institutional money—the large banks and hedge funds that actually move the market. When you see levels on top of other levels forming tightly within the same general price range, you've found a critical clue.

This is a powerful signal that a major player has placed multiple, stacked orders to build a significant position. You can think of this structural alignment as a bank creating a double layer of protection for their investment.


The Institutional Order Stack

This stacked-level phenomenon can occur in both uptrends (as multiple Demand Zones) and downtrends (as multiple Supply Zones). It indicates an area of such high conviction for the institution that they distributed their massive order size across a slightly wider range to ensure maximum fill, creating two distinct, often overlapping, zones.

When price returns to this stacked region, the probability of a strong reaction is significantly higher than a single zone, as there are now two layers of unfilled institutional orders waiting to be executed.

How to Trade the Stacked Level

The goal of trading this formation is to respect the institutional "double defence" while minimising your risk. We achieve this by strategically placing our entry and stop-loss using the two main zone boundaries: the proximal line(closest to the current price) and the distal line (furthest from the current price).

Here is the setup for a Demand Stack (a buying opportunity, or support):

  1. Identify the Zones: You should see two clear, consecutive Demand Zones layered on top of each other. The upper zone is "Zone 1," and the lower zone is "Zone 2."
  2. Define Your Entry (Proximal Line): Place your entry order (Limit Order) at the proximal line of the second (lower) order (Zone 2). This is the first level of the deeper, second zone.
  3. Set the Stop-Loss (Distal Line): Place your stop-loss just below the distal line of the second (lower) order (Zone 2). This puts your risk protection past the last layer of the institution's defence.
  4. Set the Target (Distal Line of First Order): While your ultimate target should be the next major opposing Supply Zone, your initial, high-conviction target can often be placed at the distal line of the first (upper) order (Zone 1).

Trading Element

Location for a Demand Stack

Rationale

Entry

Proximal Line of the Second (Lower) Zone

Aims to get filled at the first line of the institution's secondlayer of orders.

Stop-Loss

Just Below the Distal Line of the Second (Lower) Zone

Respects the entire structural foundation of the stacked zones.

Initial Target

Distal Line of the First (Upper) Zone

Targets the return to the higher price of the first order's initial price move.


This strategy capitalises on the strong conviction shown by the institution's stacked orders while placing your entry at a statistically stronger price point.

By waiting for price to penetrate the first zone and enter the second, deeper layer, you are aligning your entry with the most protected part of the institutional position, which is a powerful way to minimise risk and maximise confidence in your setup.

Key Takeaway

The stacked-levels setup is a premium trade. When you spot it, it confirms that a major player is committed to a directional move. Always remember to check for other confluence factors—such as trading with the higher-timeframe trend—to further increase the probability of your trade.

Have you spotted a stacked-level setup on your charts recently?

Comments

Post a Comment

Popular posts from this blog

What Is Supply and Demand Trading?

What Is Supply and Demand Trading? If you’ve spent any time exploring price action or smart money concepts, you’ve probably heard the phrase “supply and demand trading.” It’s one of the most popular methods used by professional traders because it focuses on the most fundamental force that moves any market: imbalance between buyers and sellers . In this article, we’ll break down what supply and demand trading really is, how it works, why traders use it, and how you can start applying it in your own chart analysis. ✅ Understanding the Core Idea Supply and demand trading is a strategy that identifies areas on the chart where price has reacted strongly in the past. These areas represent institutional buying and selling —places where big players entered the market with significant volume. Supply zones = areas where sellers overwhelmed buyers, causing price to fall. Demand zones = areas where buyers overwhelmed sellers, causing price to rise. Instead of using indicators, this method u...
Post a Comment
Read more

Understanding How Price Moves: The Role of Unfilled Orders and Candlestick Charts

Understanding How Price Moves: The Role of Unfilled Orders and Candlestick Charts In any financial market—whether stocks, crypto, forex, or commodities—price movement is largely driven by the balance between buy and sell orders. One fundamental principle traders rely on is this: As price rises, it approaches areas where many unfilled sell orders are sitting. As price falls, it approaches areas filled with unfilled buy orders. These clusters of unfilled orders represent supply and demand zones , and they act like magnets. Price is naturally drawn toward them and often reacts strongly when it reaches these areas. Different Ways to Visualise Price A price chart can be displayed in multiple formats: Line chart Bar chart Hollow candlestick chart Heikin-Ashi candlestick chart (sometimes misheard as “Heineken”) Japanese candlestick chart While each chart type has its own strengths, one stands above the rest in popularity and usefulness: The Japanese candlestick chart. This sty...
Post a Comment
Read more

Risk Management in Supply and Demand Trading: Mastering Proximal & Distal Lines

  Risk Management in Supply and Demand Trading: Mastering Proximal & Distal Lines In supply and demand trading, identifying strong levels is only half the battle. The real power—and protection—comes from applying proper risk management . No matter how accurate a supply or demand zone may appear, markets can behave unpredictably. That’s why traders use proximal and distal lines to define the boundaries of a zone and determine safe, logical stop-loss placements. In this blog, you’ll learn how these lines work, how to apply them correctly, and how they build a protective barrier between you and unnecessary losses. What Are Proximal and Distal Lines? When you outline a supply or demand level on your chart, you’re essentially marking a price area where institutional traders previously placed large orders. But to trade these zones effectively, you need to define their exact upper and lower boundaries . That’s where proximal and distal lines come in: The proximal line marks ...
Post a Comment
Read more