Forex Supply and Demand: Trending Market - ForeXposed


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Monday, March 13, 2017

Forex Supply and Demand: Trending Market

In many cases, trend reversal does not happen without giving a signal or an early warning that would turn direction. The sign is given in the form of price patterns and sometimes accompanied by buying climax or selling climax. As long as the signal is not visible the existing trend is still valid.

We have to understand two things:

  1. Momentum accompanying price.
Momentum is the velocity/speed. For example, if you see the EU down from 1.40 towards 1.35 within 1 week, we will know that there is strong momentum behind the price action rather than down from the same level but takes 1 month.

This important concept you should really understand as a forex trader, so you don't get stuck taking a ‘buy’ position when prices fall quickly because assuming the price is already low (catch falling knife) and will immediately reverse direction. The shorter time takes by the price to move from one level to another level, the strong existing momentum.
Forex Supply and Demand: Trending Market

We don't need any indicators to know there is strong momentum behind the fall of EU. Sharp motion (red line) is the momentum, the sharper the peak, more powerful the momentum. This is what we need to be aware.

In studying Price Behaviour, while downtrend the lowest level is achieved before the price consolidating on the equilibrium area which called Momentum Low (ML). At this ML point, seller looks very ambitious to sell, very excited.
Forex Supply and Demand: Trending Market

So while viewing the chart, the first thing we look for is the Momentum Low on the Supply and Demand zone (Momentum High for the uptrend) and then waiting for consolidation to be 'entry' at better prices level in the zone. This is the type of entry for aggressive traders.

As for more conservative traders is waiting for Momentum Low breakout, and the most conservative traders waiting for the pullback, as already described in the earlier article. Because all type of entry has different risk levels.
Forex Supply and Demand: Trending Market

  1. The momentum is likely to accelerate.
During a row of lower low (vertical red) is still there, then we're on down trending. And when the momentum still strong accompanying the motion, the probability is the price will continue its direction in the direction of momentum. Breakout of each equilibrium zone will be a proof of increasing volatility and momentum until the price reaches next equilibrium level where the volatility and momentum subside.

This just repetition of the important concepts of price behavior:

1- Price moves in the Trend;

2- The Trend moves in Wave;

3- Impulse Wave = the momentum moving in the direction of the trend;

4- Followed by Corrective Wave = Correction = Retracement;

The market will always be in one of the following three conditions:

1- Trend;

2- Consolidation;

3- Reversal;

Two things about momentum:

1- Momentum accompany the price;

2- Momentum is likely to accelerate.

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