Supply and Demand Forex: Price Behavior and Chart Structure - ForeXposed


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Monday, February 27, 2017

Supply and Demand Forex: Price Behavior and Chart Structure

Price Behavior and Structure of The Chart:

  1. We are trying to find the probability of price action direction from repeating pattern.

  1. Price is a leading indicator.
By accepting the fact that people in the financial market are driven by emotional factors, so the price is a leading indicator as a reflection of buyer and seller behavior.

  1. Knowing the market psychology condition (market sentiments).
By the price (leading indicator) is a leading indicator we know whether they are bullish/bearish, excited/disappointed and we can find that on chart easier than you think.

  1. Supply and Demand.
All this psychological condition will give you information how to know where is supply and demand.

Any financial information in this world which is known and knowable have been reflected in the price.

This is called ' discounted ', and the market is where the discounted mechanisms work efficiently, where the fundamental events have been reflected in the price which is moving early due to that perception.

This is what is called "Smart Money" moves from the "informed buyer/seller" because they have access and big resource. Informed buyer/seller more often act before the "news" released. You may often hear the term "buy on rumors, sell on news", this is an example:
Supply and Demand Forex: Price Behavior and Chart Structure

Another example from the chart platform is when The Fed cut interest rates to 0.75% in March 2008. For those who like to observe fundamental news will know these cuts are the largest in the history of The Fed. We use USD/JPY chart to see how the smart money play:
Supply and Demand Forex: Price Behavior and Chart Structure

Usually, The Fed raising or lowering interest rates at an average of 0.25%, so the of March 18, 2008, at 02:15 am is something extraordinary (3 fold). Duly, USD/JPY is shrinking sharply, because logically, weakening dollar (interest rates is down) and the yen is strengthened. But what was happen is the contrary, when this news came out, the dollar is strengthened sharply and thus bring USD/JPY jump to 200 pips.

Try to look it up, the market just runs the discount mechanism. Note that before this news came out, the UJ has dropped sharply that day and the days before (such as when the AUD/USD rises before the RBA news), the market has been reflecting the worst scenario that may occur. So when the news came out, it was no longer any stimulus to encourages USD/JPY to down. Thus it became a trigger to a liquidation of short position and open new buy position, because of the perception has changed.

While all the fundamental factor has been discounted by the market and has been reflected in the price, then the price reaction now that you see is the perception of traders against the fundamental factor which is not/is not yet known (I hope I can make myself clear in this case).
Once again, the current price is our perception about the fundamental that known/unknown.