Support Resistance key levels and Supply Demand zones with fresh unfilled orders.
Major Supply Demand zones - unfilled orders
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ORDER FLOW in trading forex When we look at the market watch window in our trading platform we'll see each instrument's symbols and next to it two different prices, one is bid and another is ask or offer. These prices are offered to us through an online broker who is not just a broker but also a dealer. “Dealers and brokers help people trade. Dealers trade with their clients when their clients want to trade. The prices at which a dealer will buy and sell are the dealer's bid and ask prices. After they trade with their clients, dealers then try to trade out at a profit by selling what they have bought or by buying back what they have sold. In effect, clients pay dealers to take their trading problems. The dealers then try to solve them at a profit. Dealers profit by buying low and selling high. Successful dealers must be excellent traders. Brokers are agents who arrange trades for their clients. They help their clients find traders who are willing to trade with them. They profit by charging commissions.” Dealers are market makers and also known as market specialists, so they play a big role as a market participant beside other pro money, understand how they play and you'll play with them. Now we understand that online brokers act as brokers and dealers. Back to the market watch window, the ask/offer shows the lowest offer price which the market is willing to sell at and for you to buy, the bid shows the highest bid price which the market is willing to buy at and for you to sell. As you know there are two types of orders “market orders” and “limit orders”, in the image below is an example of an order book, aka; DOM, Price Ladder, Level II. Bear in mind this is only for explanation purposes; in the currency and metals market there is no depth of market, it only applies to centralized markets such as futures, equities and commodities. Of course banks and dealers have their own order books but it only show their clients’ orders. Back to the image, the offers column for sell limit orders, bids column for buy limit orders and in middle is the price. I’ve taken eur/usd prices as an example, the orders are standard lots/contracts (i.e. 200K = 2 lots and 1M = 10 lots), the two prices highlighted in yellow represent the Bid/Ask prices which we see on our market watch (spread in this example is unrealistic and only to make it easier). Anyone entering the market with market orders will be buying at 1.3010 and selling at 1.300. Now let’s say you place a buy market orders of 500K (5 lots) what will happen?! Your orders will be executed at the lowest offer consuming the 200K at 1.3010 and a 300K out of 500K at 1.3020 and this price will be the new lowest offer with 200K limit orders, so as offers were consumed price moved up to 1.3020 Another scenario; you are placing a sell market orders of 1 million (10 lots) what is the outcome?! Your orders will be executed at the highest bid consuming the 400K at 1.3000, the 200K at 1.2980, the 300K at 1.2970 and a 100K out of 500K at 1.2950 and this will be the new highest bid with 400K limit orders, so as bids were consumed price moved down to 1.2950 This is how price moves up or down by consuming orders, and bigger orders generate buying/selling pressure (momentum) pushing price in its direction consuming smaller orders until it stops (slows down /stalls) at a new price where there are opposite bigger orders placed. One last thing, the stop loss pending orders are considered as limit orders and when it’s executed it adds pressure in the opposite direction.
