How to Find Liquidity Zones/Clusters on Any Forex Pair (GOLD)
You need just 1 minute of your time to find significant liquidity zones on any Forex pair and Gold.
In this article, I will teach you how to identify supply and demand zones easily step by step.
Liquidity Basics
By a market liquidity, I mean market orders.
The orders are not equally distributed among all the price levels.
While some will concentrate the interest of the market participants,
some levels will be low on liquidity.
Price levels and the areas that will attract and amass trading orders will be called liquidity zones.
How to Find Supply Zones
To find the strongest liquidity clusters, we will need to analyze a daily time frame.
A liquidity zone that is above current prices will be called a supply zone.
High volumes of selling orders will be distributed within.
One of the proven techniques to find such zones is to analyze a historic price action. You should identify a price level that acted as a strong resistance in the past.
4 horizontal levels that I underlined on EURGBP influenced market behavior in the recent past.
The price retraced from these levels significantly.
Why It Happened?
A down movement could occur because of an excess of selling orders and a closure of long positions by the buyers.
These factors indicate a high concentration of a liquidity around these price levels.
How to Draw Supply Zone?
One more thing to note about all these horizontal levels is that they cluster and the distance between them is relatively small .
To find a significant liquidity supply zone, I advise merging them into a single zone.
To draw that properly, its high should be based on the highest high among these levels. Its low should be based on the highest candle close level.
Following this strategy, here are 2 more significant supply zones.
We will assume that selling interest will concentrate within these areas and selling orders will be spread across its price ranges.
How to Find Demand Zones
A liquidity zone that is below current spot price levels will be called a demand zone . We will assume that buying orders will accumulate within.
To find these zones, we will analyze historically important price levels that acted as strong supports in the past.
I found 3 key support levels.
After tests of these levels, buying pressure emerged.
Why It Happened?
A bullish movement could occur because of an excess of buying orders and a closure of short positions by the sellers. Such clues strongly indicate a concentration of liquidity.
How to Draw Demand Zones?
Because these levels are close to each other, we will unify them into a one liquidity demand zone.
To draw a demand zone, I suggest that its low should be the lowest low among these key levels and its high should be the lowest candle close.
Examine 2 more liquidity zones that I found following this method.
Please, note that Demand Zone 2 is based on one single key level.
It is not mandatory for a liquidity zone to be based on multiple significant levels, it can be just one.
We will assume that buying interest will concentrate within these areas and buying orders will be allocated within the hole range.
Broken Liquidity Zones
There is one more liquidity zone that I did not underline.
That is a broken supply zone. After a breakout and a candle close above, it turned into a demand zone. For that reason, I plotted that based on the rules of supply zone drawing.
Start Market Analysis From Liquidity
Liquidity zones are one of the core elements of forex trading.
Your ability to recognize them properly is the key in predicting accurate price reversals.
Identify liquidity zones for:
spotting safe entry points,
use these zones as targets,
set your stop losses taking them into consideration.
They will help you to better understand the psychology of the market participants and their behavior.
I hope that the today's tutorial demonstrated you that it is very easy to find them.
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