The Reason Why it’s Safer to Trade against Compression

Too Risky to Sell EUR/CAD with this Supply Above?
At any time frame, the EUR/CAD seems to be in bearish momentum.

In the H1 chart, the price is in a downtrend of almost 300 pips. While yesterday a fresh supply was created by the price above.

Most of this downtrend was a compression which meant that the price compressed down while picking up all the sell orders along the way.

Compression indicates a powerless movement in the price. In other words, it seems the last downtrend of the price was powerless and it’s safer to look for a reversal signal and trade against the compression.

Usually, a supply level is a great level for a sell position, but this supply is created after the price had already decreased about 250 pips and divergence has occurred between the MACD indicator and the price.

So, instead, I will use this supply as a confirmation zone and not as a level of sell position to sell this supply as is too risky now.

If the price will break out the supply, it will be a signal for reversal opportunity and we should look for a price action setup for a buy position.

Breaking out the supply above will change the momentum in the H1 chart from bearish to bullish.