Winning Trading Logic – Detecting Supply and Demand Unbalance
If you are the Forex trader or Stock trader, then you need the winning trading logic. The supply and demand concept is one of the tool that can help you to understand the winning trading logic.
Supply and demand analysis is known as several different names in the trading community like the supply demand analysis, demand supply analysis, supply demand zone trading, demand supply zone trading, and so on. In fact, all these various names are referring to the same trading strategy. We can use the name “supply and demand analysis” . In essence, supply and demand analysis is one form of price pattern trading. The trading idea comes from understanding the supply and demand curve often appears in the Economic textbook. In fact, the supply demand analysis in trading involves to identify the price movement, which are caused by the unbalance in supply and demand. The practice does not require any math skills. However, it is more on the pattern recognition exercise with the chart.
In terms of the technical analysis history, the supply and demand analysis shares some common characteristics with the volume spread analysis (VSA) devised by Richard Wyckoff in 1930s. In the volume spread analysis, Richard Wyckoff believed that the market shows the sideways move before making a strong bullish rise or bearish fall. Practically, the sideways market can be analysed by several different methods including the statistical method and pattern recognition method. He pointed that this sideways movement is the key area for our trading. He named this key areas as accumulation and distribution respectively for bullish and bearish trading. The key area consists of two prices forming a box zone. Similarly, the supply and demand analysis involves defining the key area to trade.
We introduced this supply and demand analysis for two reasons. Firstly, the supply and demand analysis is simple and straightforward. There is nothing wrong with simple strategy as long as they are effective. Secondly, this is another trading strategy to predict the fractal wave in Forex and Stock market. In another words, this trading strategy is a good demonstration on how to predict fractal wave (i.e. market cycle) for the starter using the peak trough analysis.
Supply and demand analysis is comparable to support and resistance. Broadly speaking, supply and demand analysis can be considered as the support and resistance up to some extent. However, there are some differences between them. Firstly, support and resistance on their own are more or less volatility prediction tool. In another words, they predict the price level with potential high volatility. However, supply and demand analysis with the pattern recognition provides the direction to trade. For example, depending on the price pattern, the supply and demand analysis predicts the bullish or bearish movement. Secondly, support and resistance use the line whereas the supply and demand analysis use the key area, which is the price range between two prices. In spite of these two differences, there are some cases where supply and demand zone are formed in the similar way as the support and resistance. Hence, there could be some theoretical debate on using the supply and demand analysis as the support and resistance. However, this might be the interesting extension for the supply and demand analysis.
As we have pointed out in our article, detecting the supply and demand unbalance is the most important key in making profits in Financial market. The excessive momentum indicator is the automated tool to detect these unbalance in supply and demand for your trading. With excessive momentum drawn in your chart, it is much easier to predict the timing of new trend and its direction.
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This Excessive Momentum Zone can be considered as either Accumulation or Distribution area in the Volume Spread Analysis. You can further find the symptoms of accumulation and distribution area using our Volume Spread Pattern Indicator (Paid and Advanced version) or Volume Spread Pattern Detector (Free and Light version). You can watch the YouTube videos to find more about the Excessive Momentum Indicator.
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