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Validating Supply and Demand Zones with Secondary Evidence

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Validating Supply and Demand Zones with Secondary Evidence

Validating Supply and Demand Zones with Secondary Evidence


In the world of Supply and Demand (S&D) trading, identifying pristine levels is key. However, smart traders know that finding a level is only half the battle. To truly stack the odds in your favor, you need odds enhancers, and one of the most powerful is Secondary Evidence.

Secondary evidence is an additional layer of information that helps confirm the strength and potential success of a supply or demand level. It's the "extra something" that turns a good setup into a great one, significantly increasing your chances for a profitable investment.

What is Secondary Evidence?

Secondary evidence refers to price action that occurs near a supply or demand level but is not the level itself. It often appears as small pullbacks, consolidation, or "whippy, erratic price action" just above a demand zone or just below a supply zone.

The core idea: This seemingly noisy price action reveals the internal mechanics of the market, signalling where institutional buying or selling pressure is concentrated.

Reading the Clues: How Secondary Evidence Stacks the Odds

Let's break down the logic behind two common types of secondary evidence, drawing from the principles you described:

1. The Strong Follow-Through Move (Draining Supply/Demand)

When a price makes a strong initial move away from a level (e.g., a rally from a demand zone), it often drains the remaining orders close to that original level.

  • Imagine a stock at $10. Big buyers step in, and the price jumps to $15.
  • If the price immediately rallies again from $15 to $20 with very little resistance, this indicates the supply (sellers) that was sitting between $15 and $20 has been cleared out (drained).
  • The takeaway: A quick, unimpeded second move signals a clean path for the price. When the price eventually returns, the original demand level is likely to hold strongly because the "resistance" immediately above it has already been consumed.

2. The Multi-Touch Confirmation (Large Order Concentration)

If the price repeatedly pulls back to a specific area but fails to penetrate the level before continuing its move, this is a strong sign of concentrated orders.

  • Consider an area where the price drops multiple times, touches a specific zone, and then rallies higher.
  • The implication: Each pullback and subsequent rally tells you there are a large number of active buy orders sitting in that specific area. They are defending the level!
  • The takeaway: When the price eventually returns to that level, the odds are high that those powerful buy orders are still active, offering you an excellent, discounted opportunity to buy the stock. The level is now "pre-validated" by multiple defences.

Secondary Evidence vs. The Real Level

It's crucial not to confuse the noise of secondary evidence with the core S&D level itself.

  • Secondary Evidence is the price action (the multiple pullbacks, the whippy candles, the consolidation). This is where novice traders often get chopped up. We avoid trading in these areas.
  • The Real S&D Level is the untested zone of fresh imbalance that lies just beneath the secondary evidence (for a demand level) or just above the secondary evidence (for a supply level).

A helpful rule: If the price is just touching or barely touching an area without a deep penetration, it's often a signal that the underlying core S&D level is very strong and is being actively defended.

Putting it Into Practice

Next time you locate a promising supply or demand level, don't just stop there. Look for the secondary evidence:

  1. Check the Follow-Through: Was the move away from the level strong and swift, suggesting the path is clear?
  2. Count the Pullbacks: Did the price repeatedly test and fail to breach the zone, indicating large hidden orders are present?

By incorporating secondary evidence into your analysis, you move beyond merely spotting zones and start identifying the conviction behind the market's moves. This simple shift in perspective is a major odds enhancer that will significantly improve your trading accuracy.


What odds enhancers do you use in your trading? Share your best tips in the comments below!

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