Forex Supply and Demand: The Indicators - ForeXposed


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Thursday, February 23, 2017

Forex Supply and Demand: The Indicators

We all know, emotions can destroy our trading career. Often, decisions that based on emotions will be hard to make the traders survived in his first year at forex trading world.

But, there are other reasons that also play a role in shortening the trading career; that is a failure in understanding (miss use) of forex indicators.
Know it, the price motion in all free market is a function of the law/principle of supply and demand. The opportunity arose when these simple calculations being imbalances. The larger imbalances, the greater opportunity. As good as any strategy you have, if you ignoring this basic functions then be prepared to 'pack the suitcase', find the exit door.
You can spend days to find forex trading signals by using a combination of indicators known by people as 'holy grail ' to reach goals towards the wealth/success. But in the end, you will return to the zero point.

There's a reason why people do this, because THEY HAVE NO IDEA that the process of supply and demand always happens in every second at each price levels.

Indicators which is derived from the price it's certainly lagging. Lagging indicators would add risk and reduce the potential of profit margin.

Don't get me wrong, I do not intend to argue about the indicators, but let's use it on the right portion.
Forex Supply and Demand: The Indicators

The image above is a chart with MA 20 and 200. Both averages are usually used by investors. Look at the slope of MA 20 on B areas. Here, the slope shows a down direction which indicates the ongoing downtrend.

But at the time, before you, an opportunities for buying low risk/high reward is seen, because at "B" point, the price revisits demand area that already being indicated by "A" point.

Those who use trading software like MA as a trend filter or trading signals will think twice to perform 'buy actions' when the trend is "down". The trader/investor group deceived by indicators will say, "I don't want to buy now because the trend suggests a downturn".

The illusion of using only MA as a decisive trend will make you ignore the chance to buy (sell) at low risk/high reward that appears at any time. In fact, this illusion will encourage traders to take decisions that are opposite to the reality of objective information that is delivered by the price.

Moving averages is lagging because he took past data. He would only move up once the price is rising. Let's focus to the MA 200, especially the "B" area under MA 200. The majority of the trader/investor considers MA 200 as a 'mystical line'; as most experts/gurus/commentators on TV use it as a reference. As we have seen, waiting for price rises above MA 200 prior to makes buy action means three things:

  1. The risk to buying is higher because people who doing 'buy action' do it at above the demand area ("A" point).

  2. The potential profit reduced.

  3. They who wait to buy when the price is above the MA 200, it was likely the source of profit for realistic traders/investors who buy on "B" demand level.
The shifting imbalance of supply and demand starting from "A" point, and this has nothing to do with the MA 200. Considers that, moving averages as leading the price is a mere illusion.

It is possible that MA is working well, and if it only in accordance with supply and demand. Let's see the logic objectively. "A" area is a support level (demand). How can I say this is objective support?

It’s simple. When the price is sideway the supply and demand are at the state of balance. In the example above, the price jumped up from the area of this balance. The only cause that makes the price rally from the area of ‘balance’ is when the calculation of the supply and demand being ‘out of balance’. In other words, there are more buyers who are willing and able to buy than the seller at "A" point.

"B" area shows the first time price revisits his starting point. In other words, the price down into areas that objectively there are more buyers than sellers. "B" indicates the area of buying low risk/high reward, and it gives you three things:

  1. The protective stop will become smaller because the risks taken is smaller.

  2. The potential profit as measured from a distance of entry to the supply area got bigger.

  3. The probability of success is higher because the price is at a level that is relatively more secure.