How to Use Supply and Demand Strategy in Forex Trading - ForeXposed

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Sunday, April 2, 2017

How to Use Supply and Demand Strategy in Forex Trading

Among the various kinds of things, that very important in forex trading is a knowledge of the aspects of supply and demand. This will be very useful and can be a foundation for you when you will plunge into this hard world business. As a foundation in using the strategy you use.

Each forex traders have their respective strategies. However, the ability to identify supply and demand areas is absolutely necessary. This is useful for increasing your percentage of winning trades and reduce the possibility of losing trade.

At the end of this article, you will be able to define what it is supply and demand. You will also know why supply and demand can help you in improving the quality of your forex trading, and produce more profitable trade.

What is the Supply and Demand of Forex Trading Strategy?

To knows the definition of these two words simply starting with one word to one of each term. So, I hope this would be easier for you to understand supply and demand, then it easier to understanding the explanation.
Supply is SELLING.
Demand is BUYING.
Of course,  more detailed explanation about it is not as simple as that. However, by understanding these two words, you will get a little bit of an overview and understand the basic concepts.

The point is; the increasing in the supply also means increasing selling pressure. This led to the price to fall.

The image below shows the supply curve in a simple form.
How to Use Supply and Demand Strategy in Forex Trading


In the picture above, as prices rise, so does the number of units available in the forex market. This happens because when the price in the market is increasing, the market participant considers that doing 'sell action' will be more promising, resulting in the prices to go down.

On the other hand is the presence of visible demand. The increasing demand is demonstrating the increasing pressure to buying, also known as an area of support. This area is the area that shows the occurrence of increased buying pressure which results in increasing price.

The chart in the picture below shows the demand curve in its simple way.
How to Use Supply and Demand Strategy in Forex Trading


Look at the picture above, see how when prices increase, the number of units available in the market decreasing. This happens because the movement of the buyers which resulted in increasing price, so that the number of units that are on the forex market are being reduced.

The occurrence of persistent imbalance between supply and demand have resulted in the price in the market always fluctuate. When the supply increases the price in the forex market will decrease, and vice versa, when increasing in demand happens, will resulting the price to rally to the top.

Of course, now you have to have a good understanding of the Supply and Demand concept. Next, let's learn how to identify these areas on the chart in the forex trading.

How to Identify The Supply and Demand Areas?

The most effective and efficient way to understand supply and demand concepts is with turning it into actionable areas on your forex chart. To simplify, we can assume that, increased demand is the need for us to immediately notice the support area. Vice versa, an increase in supply is a call for us to immediately notice the resistance area.

We can call these supply and demand areas as well as support and resistance levels. This is a level where you can use it to explore the opportunities to 'open sell' or 'open buy'.

Forex chart example in the picture below is one great example of using support and resistance areas as a reference for doing an entry-level position.
How to Use Supply and Demand Strategy in Forex Trading


Look at the picture above. Seen the occurrence of a fight between buyers and sellers. The level originally functioned as a supply area (resistance), and later transformed into demand (support) after the price broke up.

The shape of these levels or value areas may also be diagonal. We refer this diagonal levels as trendlines. The trend line could also be very useful for identifying opportunities for selling or buying.
How to Use Supply and Demand Strategy in Forex Trading

Look at the picture above, how strong demand that has been carved out by the great rally in GBP/USD. See how every time the price visiting this area, the buyer is in action which resulted in the price to going up.

The level areas such as trend line in the example above can be a good way to identify the potential benefits that can be taken in the forex market. Things like this can be very profitable for a forex trader and can become the foundation of forex strategy in the forex trading online.

Benefits of Forex Supply and Demand

Knowing and understand forex supply and demand before making a forex trade is very important for forex traders who want to achieve a profitable trade.

First, understand the basic concepts of this, and then learn how to take advantage of supply and demand as a reference in identifying areas of support and resistance on your daily forex trading strategy.


Reference: Daily Price Action