I am very new to forex and have been doing paper trading for about a week now. I have been doing as much research as I can but seem to not under stand the concept of supply and demand test. For starters I dont understand what about the bar charts tell you that there is being a test nor do I understand how to tell if there is a test on supply or demand. I also dont understand how to tell if the test failed or past or what about the test will tell you if it fails or pass. If any one can help me out a bit it would be greatly appreciated. Thank you
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Interesting questions, @trade9013
While we had never thought of these concepts using your wording, it’s fair to say that when the market is trading at a key support level, then it is testing the level of demand (buyers in the market) at that price. Conversely, when the market is trading at a key resistance level, then it is testing the level of supply (sellers in the market) at that price.
If the market price continues to drop below the support level, then the support level has failed (the test), because supply (selling) has exceeded demand (buying) at that price. If the market price bounces up from the support level, then the support level has held (passed the test), because demand (buying) exceeded supply (selling) at that price.
If the market price continues to rise above the resistance level, then the resistance level has failed (the test), because demand (buying) has exceeded supply (selling) at that price. If the market price falls down from the resistance level, then the resistance level has held (passed the test), because supply (selling) exceeded demand (buying) at that price.