Price moves in the path of least resistance, governed by supply and demand.
While nobody knows with any degree of certainty, which way a market is going to move, we do know that price movements are governed by supply and demand.
This is the buying and selling activity of other traders.
The fact that these traders are simply just other human beings, means they're predictable.
Supply and demand zones are simply predictable areas where buyers and sellers are waiting on the chart.
They are predictable because when it comes to supply/demand (support/resistance on a chart), it is simply an area where price has reacted in the past.
We know that humans are lazy.
As markets are just a reflection of human activity, we can identify areas of supply/demand, then figure out the path of least resistance between them and make trading decisions accordingly.
By identifying the path of least resistance between supply and demand zones, we trade with an edge on each position.
Using an electrical storm as an analogy for the flow of price
On one of my many visits to the online forex forums that I used to frequent at the beginning of my trading career, I stumbled across an analogy for the flow of price that still resonates with me to this day.
Think of a farm in an electrical storm as representing your trading day.
Just like you can't predict which way a market will move, you won't ever be able to predict exactly where the next lightning bolt will strike.
But as you know that lightning will more likely strike the high points, to give you the best chance of predicting where the strike will occur, you can lay down rubber matting across the open field and then build tall metal towers on the surrounding mountains to catch them.
In this analogy, the tall metal towers on the hills represent your entries and exits because this is the path of least resistance for the lightning to run to.
The rubber matting doesn't conduct electricity, so a strike is much less likely to occur here.
You want your stop loss to be on the matting where there is hardly any reason for lightning to strike.
You then want to continue to allow lightning to predictably strike the high points toward your profit target.
But sometimes despite all logical predictions, lightning won’t always strike the towers where you expected.
This is just like trading and if lightning did strike your matting, setting it on fire, we can use this as an analogy for a losing trade.
It won’t happen as often as the towers are hit, but it will happen from time to time.
Can you see that the science here is just like your edge in trading?
To make money, you just need to be right more times than you're not, so therefore trade in the path of least resistance.
The opportunity support/resistance presents
As we previously discussed, it’s possible to make money trading crypto without predicting the market.
The fact of the matter is, that nobody... and I mean NOBODY, knows with any degree of certainty, which way a market is going to move.
But the point is that you don’t have to.
The market presents you with an opportunity each and every day in the form of levels.
The charts, scattered with support/resistance zones already drawn out, show us where the electrical storms are likely to happen at all times.
In the form of support and resistance, the market has already laid the grass with matting to tell you where lightning is least likely to strike.
You don't even have to build the towers on the hills to catch the lightning, you just need to be able to spot them.
Just like huge metal towers, these entry zones are unmissable to a trained eye.
All you have to do is spot them, trade them and then manage your risk so that if by the odd chance lightning decides to burn your matting, you survive.
Pretty cool, right?
Best of probabilities to you.
Direct from the desk of Dane Williams.
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