Forex Supply and Demand: Classical Patterns - ForeXposed


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Tuesday, February 21, 2017

Forex Supply and Demand: Classical Patterns

One of the many topics discussed in the literature is the classical trading patterns (classical formations). We meet such terms such as Head and Shoulder, Round, Flag, etc.

Before we use it to analyze the charts and then take the decision to entry, it's will good if we try to study more about it.

We start by asking the right questions. How do you make profits? If we do ‘buy’ entry, then we want others to ‘buy’ after us at a higher price, isn't it? Therefore, the last thing we want is to ‘buy’ after other people doing the buying action before, or instead 'sell' after the people doing the selling action. In other words, if we simply follow the ‘entry’ as shown in the books, "Round House" for example, then we might just be in a position that is troubled and unprofitable.

All of the existing chart patterns there is a similarity; doing entry after a period of accumulation/distribution takes place.

Forex Supply and Demand: Classical Patterns

Take for example a Round Bottom, or a Cup and Handle; entry ‘buy’ here done after a period of buying took place. On the contrary, such as the Head and Shoulder, where entry is made after the ‘sell’ price penetrating ‘neckline’. The entry done after the people doing the selling action, isn't?

Forex Supply and Demand: Classical Patterns

Let's use basic logic, why are there ‘neckline’ in the Head and Shoulder? Very simple, the only reason why the neckline is formed due to the area become support, showed the existence of a demand for the instrument you trade. Isn't the price bounce back if touched this level? Producing pattern what we called Head and Shoulder.

If this is a support area, so why you want to ‘sell’ here? Take a look back, and remember that most beginners it almost always ‘buy’ when prices are already approaching the resistance, or 'sell' when approaching support. They ‘buy’ or ‘sell’ after a period of buying or selling action takes place.

They do this for two reasons only. First, letting an emotion to lead for the decision of the entry/exit. Second, they maybe reading too many books written by people who have only a theory, but surely never engaged in trading, directly. These books tend to make traders follow the crowd. Remember if you follow the crowd/herd, less likely to you being able to profit and survive in forex market.