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What Is Supply and Demand?

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What Is Supply and Demand? What is Supply and Demand? In the next lessons you will be able to learn how to trade Set and Forget's supply and demand methodology. The well known forces of capitalism rule the markets the same way the law of gravity rule our planet. Buyers and sellers are in a constant and never-ending battle. The only reason why price moves in any and all markets is because of an imbalance in supply and demand. The greater the imbalance, the greater the move. In the mean time, news occurs every day affecting our planet's different economies. Positive news usually means increased demand and lessened supply, equating to higher prices. Negative news usually means lower demand and increased supply. Supply is simply the amount available, while demand is the amount that is wanted. Supply is the amount available at a particular price, while demand is the amount that is wanted or desired at a specific price. As prices increase, seller’s willingness to get rid of their products will also increase. This is called the supply curve. On the other side of that equation, buyers will demand more at lower prices; as price increases we will generally see that demand fall Trading is not gambling. Gambling is not trading There are some aspects that relate them with each other, and a few very important things we can learn from expert gamblers. Why are we interested in learning how to trade supply and demand? Why do we have to make a trade plan? Why do we follow a set of rules to trade? The answer to all of this is "to have an edge", to be able to identify buy and sell signals in the market and execute the trades systematically in order to have consistent results. To be more precise 'having an edge" means having greater probability on our side. Notice the word "probability". It's very important to understand that no edge can give us guarantee of success, it can help only with probability. Under such circumstances wouldn't it be right to say that a trader's edge is to think in probabilities and to understand this gambling industry is the best place to look at. The entire industry is based on probability with an edge in favor of the operators. Like expert gamblers, the best traders think of trading as number game and trade probabilities to produce consistent results. Probability word suggests inconsistency but it can still produce consistent results over a large sample of trades if the edge is good enough and is applied consistently. Watch this 15 minutes very interesting video dealing with exactly the gambling concept REAL LIFE EXAMPLE Let’s imagine that your wife asks you to purchase some meat for dinner. You go to the market and notice that the price of the steak you normally buy has almost doubled! It’s now going to cost you twice as much to enjoy your barbecue, you quickly begin to think how valuable that lamb steak might be. You begin to look for alternatives, such as a pork hamburger or chicken; replacement products with which you can get a similar result at a far lower cost. While you may decide to pay the doubled price of that steak, you have to think of the market dynamics at work. Not every steak buyer would be interested in doing this, and many would opt for replacement products. This is a living example of a demand curve. As price increased, demand decreased. Let’s say the next week you go to the supermarket and you notice that that same lamb steak is half of what you are used to pay for it, or 80% off of last week’s price.Now your thinking will be very different to week's. You will be thinking that you can load up while the price is cheap. Customers are loading up too while price is that cheap, and you realize that if you don’t act fast all of the discounted meat will be gone before you know it! This is demand at work again. As price has moved lower, we've seen how demand increased. Not only for you, but the market in general. This example isn't all that different than what we can see on the currency markets. The Forex market is the biggest on Earth, and the reason for that is the heavy demand behind the traded assets. Currencies are the basis for the world’s economy. Whenever one economy wants to trade with another economy (provided different currencies are used) a Forex exchange will be required. Unlike markets that are traded through an exchange, each Forex broker is essentially creating a market. More or less, the charts will look the same, but individual bars can be different and price patterns in particular can vary a bit from broker to broker. Ultimately the various markets created by the brokers will to some extent be arbitraged so they stay rather close to each other. In the end you have to just trade what you see on your charts and ignore everything else. What we perceive as the personality of a pair is just manipulation of a pair. Some pairs have lower liquidity (some cross pairs and exotics), zones are overshot and then they work great. That is not the picture of "this pair does not respect supply and demand", that is the picture of "this pair is being manipulated, bear traps, and bull traps". Remember that Forex is the biggest market in the world, it's traded by professionals and not by retailers. A hunter has all sort of traps to capture its prey, so do the big institutions. We are trying to combat professional hunters, as retailers we are their prey. SUPPLY & DEMAND, AND THE MARKETS, HAVE MEMORY How many times have you seen a market retrace back to a level where a recent major move started from, only to respect that level almost exactly before making another strong directional move? It happens often enough to be something that you need to understand and know how to make proper use of, because these scenarios can often yield very high-probability and high reward to risk trades. It’s important to note that the trade setups at Set and Forget are no a ‘perfect science’, but they are occurrences in the market that are critical to understand, and a tool to have at your disposal when you’re analyzing charts, The first point you will need to understand is: A market will often ‘remember’ and respect where a major move started. That is to say, if a market retraces back to the level or area a major move started from, many times (not every time) it will again bounce or fall away from that same level / area. As a supply and demand and price action trader, this is a BIG clue for us and we can use it to develop several high-probability entry technique: WoW trade, PCP, trend line breaks, etc. TRADE WHAT YOU SEE ON YOUR CHARTS Due to the nature of a 24 hours Forex market and a multitude of different brokers offering different price feeds and commissions, charts may look different amongst brokers. Not only that, but their servers close candles at different GMT times, once may close it at NY close, another one at GMT 0, or GMT +1 or +3. All this will change the looks of any chart, a CP may look like an ERC candle, a basing candle on Broker #1 may not be a basing candle on Broker #2. What can we do about it? Nothing. Just trade what you see on your charts. The rule with any trading methodology is that you trade what you see on your charts, as simple as that. ECN versus non-ECN broker, that does NOT matter at all. You just trade a set of rules, be it supply and demand, EMA crosses, CCI overbought/oversold, any set of rules, you trade them based on what you see on your charts, why should look at your neighbor's charts? Are they better? Who says so? Your neighbor? Imagine you are happily married with your wife, you have many friends happily married, are your friend's women better than yours? No, they are all women, each of them awesome by themselves, try to have a sane relationship with your wife without looking at your friend's women, your life will be better The same applies to trading, trade what you see on your charts, don't look at other broker's charts, your broker offered you a price feed, trade it! That's all, as simple as that. Type of SD levels: Extremes (valleys and peaks) versus Continuation Patterns (CP) There are many nuances that you need to learn through practice and a lot of screen time. There are as many nuances as different brands of cars are... BMW, Ford, Mercedes, Chrysler, Chevrolet, they all have different colours and shapes, but they all are cars. The same applies to the 2 types of imbalances. Imbalances and different cars brands How do you think you are able to make out the differences between different Ford models? Because you've seen so many in your life (you may have own a couple), you were interested in those models, you read about them on magazines and articles, saw them on TV ads... your brain is used to seeing them, so you can differentiate between almost identical models.... Trading and learning share the same processes, practice and time are needed.
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