Forex Supply and Demand Strategies: Price and The Factors that Moving it - ForeXposed

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Sunday, February 26, 2017

Forex Supply and Demand Strategies: Price and The Factors that Moving it

The price movement was a direct result of the collective perception of the entire buyer and seller in the market, if the perception is changed then the price will change.

For example, in the position of a low price in your chart, when there is no seller is willing to sell at the low level and want higher prices to sell, and buyers are willing to buy at higher prices then the price will go up. Likewise at the High, if the buyer rejects to purchase at the price that exists now, and only willing to buy at the lower price, and at the same time the seller is willing to sell at the lower level, then the price will go down. These collective perceptions continue to exist and able to move the price at the extreme levels when it’s up or down.

If this movement is a collective perception, then it includes your perception, me, and other people as human beings who have emotions. Hence the market is driven by a human who can make a mistake and on the other side was able to make a super genius decision.
Forex Supply and Demand Strategies: Price and The Factors that Moving it
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We know that psychological aspects such as FEAR, GREED, HOPE and others are very playing at the major role in the market movement. In order to produce a successful trade, we must be able to understand the way of thinking of other people and how it functions at a different trading situation.

People always behave the same when in a group, and when they were under pressure, then likely they are to be:

  1. Make the same mistake in doing an analysis.

  2. Rarely produce a rational decision.

  3. Weak in managing risk or observe the direction of the market.

  4. Get caught in an unfavorable trade situation and postpone the decision to exit.
All of this human emotion will be reflected in the Price Action and Chart as well as a source of opportunities for successful traders.
We can see the emotion factors and recognize it on the chart. Our success as forex trader depends on the ability to understand the psychological conditions that affect prices and exploit it for our advantage. Successful traders are capable to seeing the arising opportunities from the emotions as well as wrong analysis of other traders.

Human emotions and irrational thought patterns which make many repetitive patterns (recurring pattern) on the chart where we can identify and make it as opportunities into profit.
Forex Supply and Demand Strategies: Price and The Factors that Moving it
Illustration

This is why the price behavior became important as reflected in the market movements due to the irrationality and always repeated. Understand it will give us ADVANTAGE (THE EDGE).

The EDGE is what differentiate between professional and amateur. Without an ‘advantage’, we will lose money at the ‘battle’. A professional trader will not choose to trade on ‘high risk and low reward’. This Advantage is: Setup at a chart that statistically gives us an advantage from market behavior that is likely repeated in the future.


This is 4 Basic Elements of Advantage:

  1. One set of rules or methodologies; these rules should be clear and Keep it Simple (KIS). You have to know what you do and why to do it and follow these rules consistently.

  2. Optimum Entry; If you get a 'buy' signal, try to buy at the best level because we want the prices moving according to the analysis and in a short of time.

  3. Optimum Exit; buy entry alone is not enough, even though prices have been moving up, we have to close the trade at the optimum level which is suitable for market conditions.
  1. Portfolio Selection; It means we as traders must be able to make a trade on any instrument. Whether to trade the EU every day? AU or GJ? The answer is NO, we trade in instruments that provide the best setup. Indeed as beginners, it is reasonable if you focus on one or two pairs to understand its characteristics, but as a trader, you can trade anything. If the GBP/CHF provides a potential setup, do the trade. Why is this so? Since you already have a set of rules, methods, and what your trade is not just EUR/USD instrument but more than that is ‘trade’ of human behavior that reflected in the market behavior.
Forex Supply and Demand Strategies: Price and The Factors that Moving it
Illustration

Where we can find these advantages (Edge):

  1. The Edge can be found at the site of the most fierce battle of the Buyer and the Seller that is supply and demand area, and what we do is waiting to see who is winning and who is losing.

  2. Support and Resistance (S/R). The breakout occurred when the prices broke through previous S/R. When the price is breakout then the trend follower will move following the price because there is a "gap" in human perception when the breakout occurs.
  1. When prices approach the Support and Resistance levels often indicate instability; If a breakout occurs then prices are likely to keep moving for a while and the distance traveled is pretty substantial.
  1. If you a breakout trader, then take a long position when resistance or supply area is broken, and take sell position if support or demand area is broken.
  1. Exit 'buy' position on short-term resistance (supply) and exit 'sell' position on short-term support (demand).
When looking at your chart, you should look it in PROBABILITY perspective, since:

  • No anyone knows where the price will move (up or down).
  • Every trade can be a winner or loser.
But we want to find a forex trade that has a high probability and in long-term consistently produce more winning trades than losing trades. We do not attempt to predict the price direction. Most novice trader strives to be clairvoyant, and often say "I think the dollar will go up" or "I guess GU will go down", this indicates that they are trying to predict the future. If the prediction is correct then they will feel very happy, but if wrong they will feel very shocked and start to blaming everything. Because no one knows where the price will move, why would you put a burden on your shoulder to predict the price?
All you need is REACTIVE rather than PREDICTIVE.
If X condition occurs then you can act as a buyer, if Y then you act as a seller. X and Y are conditions that occur in the market that meet criteria of the set rule.

While professional traders get into the market, he makes no predictions but reacts to the price motion, day in day out, because they have a set rules for entry/exit and just take a low risk/high reward trade. The key is consistency.

Forex Trading is simple but not easy. It takes a lot of time and study for someone to realize that trading was simple. It takes time and many years (I hope this doesn't happen to you) with many losing trades to make people understand how hard is to keep it simple, and not forgetting the basic principle of trading itself.
Forex Supply and Demand Strategies: Price and The Factors that Moving it
Illustration

You must have this multitasking capability:

  1. Collect all Data: You should be able to collect all data at both the forex chart instrument and its correlation with other financial markets.

  2. Data Analysis: You should be able to do an analysis at a short time to get in and get out in accordance with the rules/specific methods.
  1. Made a Decision: After the analysis, you have to make specific decisions that should be followed consistently.
  1. Take Action: This is a decision you made to entry or exit. The sooner you act the more good, whether it be entry or exit. Don't put off an action that has been designed neatly, especially if the trade does not profitable and the risk is exceeding tolerance, just get out.
As traders we have two main responsibilities:

1. Identification and quantification of risks. The first to do is risk calculations, therefore we call it Risk Reward Ratio. The risk is calculated first and then reward. The risk calculation that can be controlled/tolerated for any trade in pips or nominals. The loss should be accepted because it is a calculated risk, and should be controlled 100%.

2. Just take high probability trade; follow the rule that has been given (later I will describe again) as to buy on demand, sell on supply, entry on each of the breakout, or entry at the pullback.