Introduction
Your are about to read the part 2 of a 3 part article called "the bouncing zone strategy".
Have you tried to find zones on your charts? If so, you certainly noticed that not all of them work as planned. Well, I have a good news for you: it’s possible to filter out some of the zones that are most likely to fail.
Before talking about what makes a zone good or bad, we should first understand what are the characteristics of a zone. That’s what we’re going to talk about here. Each section below deals about one of the characteristics of a zone.
Name of the zone
You already know the first characteristic of a zone, it’s simply the name of the zone. Is either a supply zone, or a demand zone.
Okay, now let’s talk about things you don’t know yet :-)
Type of zone
We can divide the zones into 4 different types:
- Drop Base Rally (DBR)
- Rally Base Drop (RBD)
- Drop Base Drop (DBD)
- Rally Base Rally (RBR)
This sounds weird? Here's an image that should make things clear.
This is simply a way to describe the "direction" of the zone.
Strength of the move
When price leaves a zone, it’s important to know how to describe the strength of the move. For this we have 2 useful things to look at:
- How many consecutive candles of the same color there are
- How big the candles are
If you have lots of big candles of the same color, it’s a strong level. If you have only a couple of small candles of the same color, it’s a slow level. You can see below a slow move (left) and a strong one (right).
Time in the zone
This one is simple: once you draw the zone, count how many candles there are in the zone. If you see more than 5 candles, then it's a long zone. Is there are less than 5, then it's a short zone.
In the example below you can count 3 candles, so it's a fast zone.
Height of the zone
Look at the height of your zone, then look at the height of your price movement. If the zone is bigger than 1/4 of the price movement, then the zone is big. Otherwise, the zone is small.
In the example below, the left zone is big, the right zone is small.
Freshness of the zone
You need to follow 2 steps in order to know if a zone is fresh or not:
- Look on the left of the zone, and see if your price movement is due to a previous zone being hit.
- Look on the right of the zone, and see if the the price already hit the zone at least once.
It’s easier to explain with an example:
Is the zone 2 fresh?
- On the left, we do not see a prvious zone at 1
- On the right, price touched the zone at 3
- -> The zone was fresh before hitting 3, but now it is not fresh anymore
Is the zone 4 fresh?
- On the left, we do not see a previous zone
- On the right, price did not touch the zone yet
- -> The zone is fresh
Quick summary
As we just saw, there are 6 characteristics to think about when describing a zone:
- Name of the zone: supply, demand
- Type of zone: DBR, RBD, DBD, RBR
- Strength of the move: strong, medium, slow
- Time in the zone: short, long
- Height of the zone: small, big
- Freshness of the zone: yes, no
All of this is really important, you should keep it in mind while looking for zones
Some examples
Now it’s time to see some examples together. Below are 2 zones, try to describe them using what we learnt in the article.
Characteristics of the left zone:
- Name of the zone: supply
- Type of zone: DBD
- Strength of the move: strong
- Time in the zone: short
- Height of the zone: small
- Freshness of the zone: not fresh anymore
Characteristics of the right zone:
- Name of the zone: demand
- Type of zone: DBR
- Strength of the move: strong
- Time in the zone: short
- Height of the zone: small
- Freshness of the zone: not fresh (you can see another level on the left of the zone)
Now you should practice describing zones on your own charts.
Credit: 21pips
