Forex Supply and Demand: Chart Patterns - ForeXposed


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Tuesday, February 21, 2017

Forex Supply and Demand: Chart Patterns

A good trader may only use chart patterns, but they use it in a different way, and always ask questions: "If I want to ‘sell’ with the aim to gain profit, i.e. buying at a lower price, why not 'sell' on one of the Head or Shoulder?" Because logically, there is the resistance or the supply area is located.

As in the Cup and Handle. Have you ever thought, why the bottom of the Cup is formed? Guess! If the answer is because there is the support area (demand), then you are right. That's the area of low risk/high reward entry for this pattern. Not located on the breakout, or after the accumulation takes place, where other people will join the buy at the higher price level.

Let other people ‘buy’ on the breakout and ‘sell’ when breakdown, whenever they want, as indicated by this classic patterns. They will always ‘pay more’ to us who has entered the market with lower risk entry.

A good trader will always try to ' sell ' as far as possible from support area underneath because this distance is his "profit margin". And he'll be trying everything possible to find a position of ' sell ' near resistance areas (supply) because that is the only way to reduce the risk. Vice versa, it is also the case for 'long' or 'buy'.

Simple way: Any time you find these classic patterns on the chart, make sure you always look to the left of the chart. If you look at the pattern of Head and Shoulder, and the price looks like will penetrate to the bottom of the neckline, before you take a decision to 'sell', make sure there are no areas of congestion or consolidation of demand, near underneath. If anything there, forget this 'sell' signal because this trade will fail. If the breakdown and congestion demand still rather far below, feel free to 'sell', because there is space for the price to moves down.

If you look at the pattern of Bull Flag, make sure the resistance (supply) are still far above, so the prices have space to keep moving up after you open ‘buy’ order. Use this simple rule, will distinguish you apart from the crowd/herd and will bring you closer to the way of people who are professional in executing a trade.

Forex Supply and Demand: Chart Patterns Analysis

Maybe we have heard and known patterns such as Triangles, Pennants, Flags, The Cup and Handle, The Head and Shoulders, and etc. Well, before you take the decision to 'buy' or 'sell', we recommend that you do a calculation of "profit margin" to ensure there is space for a price to keep moving, after your ‘entry’.

Let's look at some of the following examples:
Forex Supply and Demand: Chart Patterns

Although this forex pattern looks almost perfect, are we going to open order or not, depending on the 'profit margin'. Be aware, where lies the support (demand) if we open ‘short’ after the breakdown of the bottom triangle.

In the pic above, there is enough space for the 'support' first target, and there is still a little room for the 'support' second target. In this example, ‘short’ entry on the breakdown triangle is a good and valid decision. If support area close to the bottom of the triangle, then likely your ‘short' trade will fail.

Forex Supply and Demand: Chart Patterns

Again, this pattern of Descending Triangle. The difference is the line of support is rather close to the bottom of the triangle, which means the options for ‘short’ is not ideal. You should be able to quantify 'profit margin' by calculating distances of support (demand) or resistance (supply) from the point of entry, objectively.

Forex Supply and Demand: Chart Patterns

This is the pattern of the Bear Pennant which is quite popular. Here seen 'profit margin' is quite adequate. Remember, a businessman always counting a 'profit margin' before launching or selling a merchandise. Look, the prices only shortly in the pennant, this is a good sign.

Bear Pennant or Descending Triangle is referred to as continuation patterns. So, it’s likely the price will down, and our duty to calculate the potential profit.

As perfect as any kind of a pattern or formation of the candle, if still produces a failed trade, most likely it happens because the breakout hit exactly on the level of support or resistance.
Forex Supply and Demand: Chart Patterns