I have a series of youtube videos that illustrate the concept of supply and demand. The concept is the reversal bar or engulfing pattern in candlestick terminology. To see the series of videos explaining the concept go to the youtube link below.
Supply and demand is a little different from support and resistance. Swing support and resistance levels are only psychological levels unless there are buyers or sellers at that level. This is the main reason that breakout trades fail when they fail. For example, price breaks out above resistance as noted by a prior swing high. After a breakout there will typically be a reaction test. A reaction test is not the same as a re-test. A retest occurs after a turn back down, while a reaction test is a pullback that occurs before a turn.
Using the concept of supply and demand one will know the exact bar where buyers or sellers are located as well as where the stops are located. This information tells you where you should enter, exit and place your stops.
Here is a valuable secret of trading...Short sellers cause a market to rise and long buyers cause a market to fall.
Now, that's what is meant by the term that trading is counter intuitive. The common perception is that buyers cause prices to rise and sellers cause markets to fall. However, this is only partially true. And the reason is...
1. Markets rise when the stops of the short sellers are hit. The shorts have to buy to exit the trade. Short sellers are only short sellers when they enter the trade. After entry they are by necessity...buyers...
2. 1. Markets fall when the stops of the long buyers are hit. The longs have to sell to exit the trade. Long buyers are only buyers when they enter the trade. After entry they are by necessity...sellers...
Thus, Long buyers cause markets to fall and short sellers cause markets to rise.
While it is commonly taught that markets bounce between support and resistance this is not necessarily the case.
Markets bounce between supply and demand and, if there is a psychological ( swing line ) there it's all the better.
Often, traders will set their profit target at the next swing high or low and are surprised when price reverses on them before reaching the target. That is because, in between that swing high or low is a bar that has sellers in it if you are long or buyers in it if you are short.
Would you enter long if you knew price was smack into a wall of sellers or long if price is in a wall of sellers...?
Do you know where the sellers are? Do you know where the buyers are...? They are the ones holding losing positions and just waiting for price to come back to them so they can break even. In professional terms these long holders and short holders are called...LIQUIDITY...
Price chases liquidity...When a market is consolidating it is because of a lack of liquidity. Meaning, there are not enough stops in the market to make it worthwhile for the specialists to move the market. Supply and demand are in balance. This situation will usually hold until a news or data release brings a cluster of new buyers or sellers into the market, swing the balance in the direction of the new market participants.
Cheers...
Supply and demand is a little different from support and resistance. Swing support and resistance levels are only psychological levels unless there are buyers or sellers at that level. This is the main reason that breakout trades fail when they fail. For example, price breaks out above resistance as noted by a prior swing high. After a breakout there will typically be a reaction test. A reaction test is not the same as a re-test. A retest occurs after a turn back down, while a reaction test is a pullback that occurs before a turn.
Using the concept of supply and demand one will know the exact bar where buyers or sellers are located as well as where the stops are located. This information tells you where you should enter, exit and place your stops.
Here is a valuable secret of trading...Short sellers cause a market to rise and long buyers cause a market to fall.
Now, that's what is meant by the term that trading is counter intuitive. The common perception is that buyers cause prices to rise and sellers cause markets to fall. However, this is only partially true. And the reason is...
1. Markets rise when the stops of the short sellers are hit. The shorts have to buy to exit the trade. Short sellers are only short sellers when they enter the trade. After entry they are by necessity...buyers...
2. 1. Markets fall when the stops of the long buyers are hit. The longs have to sell to exit the trade. Long buyers are only buyers when they enter the trade. After entry they are by necessity...sellers...
Thus, Long buyers cause markets to fall and short sellers cause markets to rise.
While it is commonly taught that markets bounce between support and resistance this is not necessarily the case.
Markets bounce between supply and demand and, if there is a psychological ( swing line ) there it's all the better.
Often, traders will set their profit target at the next swing high or low and are surprised when price reverses on them before reaching the target. That is because, in between that swing high or low is a bar that has sellers in it if you are long or buyers in it if you are short.
Would you enter long if you knew price was smack into a wall of sellers or long if price is in a wall of sellers...?
Do you know where the sellers are? Do you know where the buyers are...? They are the ones holding losing positions and just waiting for price to come back to them so they can break even. In professional terms these long holders and short holders are called...LIQUIDITY...
Price chases liquidity...When a market is consolidating it is because of a lack of liquidity. Meaning, there are not enough stops in the market to make it worthwhile for the specialists to move the market. Supply and demand are in balance. This situation will usually hold until a news or data release brings a cluster of new buyers or sellers into the market, swing the balance in the direction of the new market participants.
Inserted Video
Cheers...