Supply and Demand, if only I had discovered that earlier

Beginner Questions
1

We all spend enormous amounts of time to learn everything we can about forex trading, but it seems to me, most traders including myself until recently, miss what is probably the most important knowledge that all professionals use. That is the “supply and demand” trading methodologies, which include locating a true strong demand or supply area, and then using it to your advantage when trading. No wonder most people lose money trading forex, since they have no clue how to locate supply and demand levels, and they cannot have an edge over their competition when trading. My advice to forex new-starters, go find some supply and demand information from a reliable source, and study it carefully. If you need an introduction to the subject, you could read this article: Supply and Demand VS support and resistance . It covers some introductory stuff, which points you to the right direction regarding what to look for in your quest for knowledge.

I hope this post will help some newer-than-myself traders to find their way. If you are a trader and appreciate supply and demand, please leave a comment! If there is any interest, i might show you guys some more stuff i found.

2

Below is just my opinion and obviously differs from yours substantially.

The big problem I find with supply and demand is
a) I find it doesn’t work consistently enough by itself to make money
b) I find the theory that it is based upon assumes a lot on how the market works and doesn’t work

Basically its too simplistic, and caters to people who think that the price of pairs is dictated by supply and demand. I think those people lose money consistently. If it works for you, great.

Theres a reason why there are so many supply and demand teachers out there, because they have to make their forex losses up somehow.

1 Like
3

Since we are giving opinions, I agree 100 percent. It’s too simplistic and assumes too much. I use the terms supply/demand when talking about the real time fluctuations in buying and selling. The ever changing balance that causes prices movements as the market seeks balance. Demand can show up on a down move because lower prices bring buyers…just an example. That’s really supply demand trading. It’s too bad the name has been hijacked by a simplistic s/r approach.

4

Well, a lot of bashing here for supply/demand… :smiley: That is fine everybody is entitled to their own opinion.

I have tried a lot of things in trading and the one of those that make more sense to me is supply and demand levels or areas… of course is NO holy grail but doing a correctly top-down analysis and with sound MM you can filter bad trades. But I am not posting to tell you how I trade… I just found incorrect that you state that price is not dictated by supply and demand:

Supply and demand is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship. [B]Price, therefore, is a reflection of supply and demand.[/B]

Economics Basics: Demand and Supply | Investopedia

[B]Supply and demand is an economic model of price determination in a market.[/B] It concludes that in a competitive market, the unit price for a particular good will vary until it settles at a point where the quantity demanded by consumers (at current price) will equal the quantity supplied by producers (at current price), resulting in an economic equilibrium of price and quantity.

The four basic laws of supply and demand are:[1]
1.If demand increases and supply remains unchanged, then it leads to higher equilibrium price and higher quantity.
2.If demand decreases and supply remains unchanged, then it leads to lower equilibrium price and lower quantity.
3.If supply increases and demand remains unchanged, then it leads to lower equilibrium price and higher quantity.
4.If supply decreases and demand remains unchanged, then it leads to higher equilibrium price and lower quantity.

Supply and demand - Wikipedia, the free encyclopedia

The stock market provides a mechanism where people
who want to own shares of stock can buy them from peo-
ple who already own those shares. This mechanism not
only matches buyer and seller, [B]but it also provides a way
for the buyer and seller to agree mutually on the price[/B].

http://www.nasdaq.com/about/market_mechanics.pdf

What determines a price? In the standard economics paradigm,[B] it is the intersection of supply and demand curves [/B]for a particular good

[I]Market Microstructure Theory, Maureen O’Hara[/I]

These make me wonder… what do you think dictates price in a market??
What set of tools do you use to be profitable?

5

I gotta say I agree with op, s&d are the fundamental movers of the market. Is it hard to interpret? Yes, but regardless of that I believe you should still take it into account when entering a trade. My current style of trading takes into account s&d as well as where money is flowing at the current time. I think a big part to be considered with s&d is to get into the minds of the big banks that are controlling the flow/demand of money so as to know where the next big move is likely to be.

In conclusion s&d is awesome

6

The best explanation so far of supply and demand, Thanks.

7

I am very surprised that there is even one person in the world bashing supply and demand, that’s obviously because you haven’t been taught how to recognize strong levels that produce great trades consistently. I am not here to teach you anything, just saying my opinion for others to hear and do what they like. But if you are NOT a profitable trader yet, and you still use indicators and oscillators, that should tell you something my friends. I have been there in the past, and it makes me sad to see others lose money and still not trying to change perspective.

It is sometimes the simplicity of the markets that is the hardest of all to see. I don’t want to take it one step further and say that there is ONLY supply and demand in any market. But i am going to say that the ONLY correct price to ever buy anything for profit, is just before or within a demand level. If any combination of indicators and oscillators can show you that, then ok!

Don’t forget that ALL indicators and oscillators lag price. Yes, even those that turn before price does, do so by calculating recent past data. On the other hand, anticipatory analysis can show you all the likely points for price turn, and with PROPER risk management, you can have an effective way of taking advantage of these opportunities. No more to say really, everyone can think for himself.

P.S. Ask Goldman Sachs if they use any supply and demand as their main tool, or if they buy when indicators say so!

1 Like
8

I don’t see anyone bashing supply and demand, it’s just that, there’s more to it than s & r levels, you need to understand market dynamics to be really successful at it, like in the graphic illustrated on the advantage signals sites, is a bit flawed, they’ve got the resistance areas correct, but the demand zones are very dubious, taking those longs would be highly risky, there is no real sign of demand and the following move after the range they illustrate is likely to be bearish, so I wouldn’t want to be taking longs off the ‘demand’ areas they illustrate.

9

Although I’m a student of this form of trading, I have to agree with PPF re the chart on that Advantage Signals site. It appears to just mark out pivots as potential supply/demand levels. There’s a bit more too it than that. You would need to drill down to a lower timeframe to look closely at what price did at those levels before determining their validity as levels.

I would suggest that anybody looking into this watch all (yes, ALL) of Sam Seiden’s videos on fxstreet. There is more than enough there to get you started. Even then, you need to invest a good deal time finding out for yourself how to find the most effective levels and make the system work. True, it’s not all handed to you on a plate. Welcome to the real world.

For every system, there will be people of the opinion that it can’t work. Let’s face it, you could give people the most failsafe foolproof system in the world, and most would find a way to **** it up.

10

I am going to only partially agree with you about the chart on Advantage Signals site (as it appears there), but guys, it is obvious that it is only for general demonstration, not for revealing everything you need to know, you didn’t really expect a picture-perfect chart there, did you? Other than that yes, drilling lower is very important as they say even during their free trial. Don’t expect to learn everything from that one chart, and if you think you could use more info on supply demand, go get the trial which is free and lasts for 30 days. I am a trial member and i receive a lot of material even now.
Also, yes i agree, those introductory fxstreet videos are quite good, but after that you’ll need something more actionable in order to learn.

11

Supply and demand are obviously an integral part of the Stock and Forex markets. Anywhere there is a crowd and they are spending money there will be supply and demand. So that would apply to the markets as well as retail selling or any component that is there to fill a physiological need. My perspective, but it doesn’t take a rocket scientist to figure that out!

12

I am interested in finding out a lot more about this. I am only just finishing the school here on babypips. Do you think that supply and demand should be researched as much by us newbies or is it best to wait until a bit more experience?

Also before i found this site i was researching a lot of training courses and a lot of the better ones based in london, used supply and demand as the main thing they were teaching. Im guessing that a lot of the major players use this as there main trading method?

13

Supply and Demand is a varying factor which will depend on many variables. This is what determines the rates based on which one is more.

When the Trader can get some idea by looking at the charts alone he can take a trading decision and thus be able to acquire valuable experiences.

14

Point is that supply and demand varies according to the time and the price level. Supply/demand trading assumes that they are stuck always at the same places - they are not, otherwise we would not have trends. You could say that overall any pair works in a range, but unless you want to trade once or twice a year at yearly highs or lows, supply/demand as taught by Sam Seiden and his clones is the same as support/resistance which is not reliable by itself, and is poor in ranging or choppy markets.

15

We agree on that, price is constantly looking for equilibrium or balance

In FX retail trading you always have to assume something otherwise we would all be millionares :slight_smile:

First I want to say I am not promoting Sam Seiden as a mentor or Guru, I believe you can get all the info to be profitable in FX free over the Internet. Sometimes I recommend to watch Seiden’s videos (free) just because he teaches something that is basic in S/D trading, he calls it: imbalance… but for a long time, even before Seiden, it is known as break levels, even the guys at 4cast and IFR use it in their analysis

Supply/Demand trading does NOT assume the buying and the selling are static, actually once a level has been used, you just have to discard it (according to some rules) for your next trade and you always are encourage to trade with the trend and keep an eye on the background (top-down analysis), unless you hit an important S/D level in a higher time frame

So, yes… there are trends in S/D trading :slight_smile:

simple you can trade any combination of timeframes, just find what works for you… I, for instance, trade anything above the 1H chart… that gives me about 10 good trades per week in the pairs I watch.

Well again, I am not here to defend Seiden or anyone else, but I think you have not seen his (free) videos, he encourages to trade with the trend (background).

“Usually” support/resistance are just the levels where for any reason demand/supply kick in… that is why you always need a SL in place

Unless you are huge market maker you would never know where supply/demand will kick in… and remain… :slight_smile:

Again, [I]nothing is reliable by itself 100%[/I], but you just have to put the probabilities on your side.

I am still intrigue what tools or type of trading you use… :slight_smile: I am always eager to learn something new.

16

I will definitely agree with yunni1, supply and demand goes hand in hand with trends, especially since the best trade setups happen in areas where supply and demand are “out of balance”, when one trend dies and another one is born.

Also, the main thing taught about supply and demand is that it is NOT the same as support and resistance.

This is part of an article:

“If you asked random novice traders “what is support and resistance for you?”, one might reply the 200 EMA (exponential moving average), while another one might say, this or that trendline, or the piercing of a Bollinger Band, this or that overbought/oversold indicator, the extreme readings of some magic oscillator, a thousand other things, or any of a million combinations of all the above. Each trader can believe different things to be support or resistance, and one trader’s support might be another trader’s resistance. But Supply and Demand can only be one thing.”

You can read the rest here:
Supply and Demand VS support and resistance

This is an introductory article (and the screenshot is NOT intended to reveal any trading secrets), but i think you get the point.

17

may i ask how much pips they risk per trade on average? and reward? how many signals per month? and mostly on what pairs?
Thanks in advance!

18

Thanks for your private email Stevod. I am going to check out the site you reccomended once I have finished the school section on here. It seems from this thread that many people have lots of different views on supply and demand (as with every other aspect of trading!), but I definately think for us Newbies it is essential to read up on this as part of our education.

19

I do use suport resistance, but this is not the only method either, nor do I rely on it. Mainly use daily candlesticks, fibs, daily support/resistance, confluence, pivots in a lump.

20

What exactly do you mean “daily support/resistance”? The highs/lows? Or something much deeper?
Also if you don’t mind, you mean confluence of the things you mentioned, or inter-pair level confluence?