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When you have a complete understanding about supply and demand, it becomes really easy for you to realize one of the important aspects of forex trading. As a matter of fact, understanding of supply and demand becomes the cornerstone of your trading strategies. Strategies like pin bar and inside bar good examples of such trading strategies. As a matter of fact, success in trading depends to a great extent on the right identification of real areas of better supply and demand for successful trading.
WHAT ARE SUPPLY AND DEMAND LEVELS IN FX
What could really become the true meanings of the terms supply and demand? Supply to a market could only result in selling, whereas demand in the market simply results in buying. As these are only the simplest explanations of the frequently used terms for the sake of understanding, bigger supply to the market only brings higher selling pressure. As a matter of fact, the selling pressure makes the price fall rapidly. On the other hand, the increase in demand means an augmented pressure for buying. When there is increased buying of a product, it makes the prices in the market rise even higher.
WHAT IS PRICE ACTION TRADING IN FOREX?
The balance between supply and demand is always changing. The ever-changing market brings movements or fluctuations in the price, which is familiar as price action. As supply goes up, the price in the market would tend to decline and when the market has more demand, it would make the price rise even higher.
HOW TO TRADE USING PRICE ACTION AND ITS IMPACT ON THE FX MARKET
Broadly speaking, price action helps in making trading strategy in forex. To add to it, price action even gets included in the technical analysis and trading chart analysis of forex. It makes attempt to find an order in apparently indiscriminate price movements.
HOW TO IDENTIFY KEY SUPPLY AND DEMAND LEVELS IN FOREX TRADING
The most useful way to do translations of the concepts of demand and supply in the forex trading chart is to change the way the trader thinks about the two terms. When a day ends, an increase in demand needs an area of support. In the same way, an area of supply could mean an area of resistance.
Technically speaking, in forex trading, experts call these as support and resistance levels. These major trading levels on the chart could give vital hints about buying and selling opportunities.
Let’s know who would make use of price action trading? As price action trading is an approach to price predictions or speculations, this gets mostly used by retail traders, speculators, arbitrageurs, and even the trading firms that employ traders.
The forex price action trading is really useful in trading wide range of securities like equities, bonds, forex, commodities, and derivatives.
HOW DOES PRICE ACTION PLAY A CRITICAL ROLE IN FOREX TRADING?
Literally speaking, price determines everything in business. Forex trading is not an exception. Price action is a vital aspect in the foreign exchange market. It simply means everything that a security price could do. But like any other thing, it is purely subjective. Of course, there are different ways, you could apply price action ideas in forex market. There are effective tools like candle-stick and price bar for making analysis of price action. Those help traders in visualizing price movements.
This is an example of how our Methodology works in action with a trading opportunity. Everything is clear and set out in front of you.
HOW TO TRADE USD/JPY USING OUR PRICE ACTION TECHNIQUES
Technical Point of View on the USD/JPY
From the daily chart, we can see a triangle formation is in play. We are now looking for a major reversal of a simultaneous touch on the triangle and supply level.
USD/JPY FOREX TRADING STRATEGY
Trade Entry: Short USD/JPY @ 112.70 with a 40 pip stop loss with a target of 111.20
Key Technical Levels on the USD/JPY
110.00 – Long term Buying Level
111.00 – Long term Buying Level
112.50 – Short term Selling Level
113.00 – Long term Selling Level
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Hopefully, you have enjoyed today’s article. Thanks for reading!
Have a fantastic day!
Nisha Patel
Live from the Platinum Trading Floor.