The Forex market follows a simple pattern of balance, imbalance, imbalance, etc. Until it trades above the high excess (breakout above the resistance level) or below the low excess (breakout below the support level), the market oscillates between the established excesses.

Balance Area:

As the accompanying chart illustrates, there should be an equal amount of buying and selling in a balanced market. A distribution is created as the price continues to move sideways within a range.

Imbalance Area:

The market is unbalanced and tends to favor the dominant companies when buyers or sellers are in control. The market will move downward if sellers are in control and upward if buyers are in charge.

Let’s go to the chart and see how we can apply these important ideas to gain a better understanding of this concept of balance and imbalance.

The blue arrows in the chart below indicate balanced areas. Because both buyers and sellers feel comfortable in this price range, these balanced locations see simultaneous buying and selling activity. Take note of the horizontal price movement.

Price departs the region with huge candles when the market shifts from a balanced to an imbalanced state. This is a representation of the imbalance, indicating that one player is better than the other. Prices fell like a rock off a cliff as sellers outnumbered buyers on the left side of the chart.

After that, the market enters a state of balance as it waits for the price to go in one of two directions: upward or downward. The price has grown, the area is balanced, etc.

The price now sank quickly on the right side of the chart, and it did so while producing little candles. It demonstrates that in order for the balanced rotations to occur, the market players are looking for a fair price.

This is the typical market cycle: balance, imbalance, imbalance, etc.

The focus of the supply and demand strategy is on identifying these areas of balance. We do this because we want to position our order in these areas and take advantage of the imbalance that causes the price to move in a particular way, resulting in a profit.