Understanding Forex Supply and Demand Trading Rules - ForeXposed

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Wednesday, May 10, 2017

Understanding Forex Supply and Demand Trading Rules

Do you know where the trend of the currency pair will move? Why the trend directions suddenly changed? If you do not know the reason, on this 'learn to trade forex' material we will review how to figure out the direction of the forex trading trends using Supply and Demand Laws.

That should be noted by traders is the prices in the market moves like the law of gravity. Buyers and sellers mutually provoke or attraction in the transaction until a price agreement reached. By observing the price charts, forex traders are trying to predict, analyze, and explore the price movement.

In essence, every single currency price movements are determined by supply and demand. If the news is positive, then the demand increases and supply decreases. Whereas if there is negative news, the demand usually to be slightly reduced and supply increased.
Understanding Forex Supply and Demand Trading Rules

Understanding Forex Supply and Demand

Supply is a number of items available, while Demand is a number of items that you want. To understand, let's use a simple illustration here.

Imagine you are going to sell oranges which are produced by your own garden, in the market you don't necessarily have to sell all of your oranges because the price of oranges being high.

In conditions like these, you can add the cost over the oranges that you have. If at first, you sell 1 dollar per bag, then you can sell 4 or 5 bags. But when you know the price of oranges is getting high, you certainly want to sell a lot more.
Eventually, the price of orange reached 10 dollars per bag and you are more motivated to sell out all the stock of oranges that you have, then you can buy the other stuff you want.

From this illustration, it is clear that you are advised not to sell all of your oranges, but wait until the price is really high.

The chart below is called "Supply Curve", the red line indicates the supply increase because the price moves higher (located on the horizontal axis).
Understanding Forex Supply and Demand Trading Rules

Now think about buyers and sellers relationship from the consumer's point of view. When the price is getting lower, demand became higher, which is the opposite of the supply curve. If the price of oranges is just 1 dollar per bag, then the consumers wish to buy orange as much as possible.

Just like the rising price, as well as the supply, because if the price of the oranges is rising into 10 dollars per bag, then the consumer will automatically find another product that is cheaper.
(picture).

The sellers and buyers will meet and compete in the market to determine the price. So the market price is determined. The following is a table describing the trading platform across the world comes with the prices that have been determined:
Understanding Forex Supply and Demand Trading Rules

The supply and demand curves can show prices efficiently because buyers and sellers can monitor their trading behind the computer screen.

In the forex market, the bargaining or attraction process between sellers and buyers (BUY & SELL) you already can see actually at the candlestick.

When you pay attention to the movement of a SINGLE candlestick that moves up or down, basically you see the attraction between buyers and sellers. At that time the law of supply and demand is underway. And ultimately resulting in Hanging Man pattern, Hammer, and so on.

The Supply and Demand concept is the basic concept for those who want to master the Price Action trading techniques that only rely on the candlestick.