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Supply and Demand

supply and demandUnderstanding supply and demand can help us become more successful traders.

Supply and demand tends to be the professional trader's main focus.

This means researching the relationship between price action, volume and price spreads.

Novice traders however focus on technical analysis indicators; moving averages, stochastics, time cycles, astrological factors etc.

The fact is, some feel smart using an indicator with a complex-sounding name. Yet sounding smart doesn't translate to profitability.

I've tried to be smart in the past, thinking I needed to outwit my fellow traders and the markets in general. Yet with time and experience, it became clear that simple, well defined processes will always come up trumps over smarts.

Yes, the professional trader may have access to more resources. They may know where the stops are sitting. Who the big players are that are buying and selling. But the professional trader also understands supply and demand, and therefore works with volume and price action as their major cues for entering or exiting positions.

This is where chart patterns can help assess supply and demand.

Chart patterns geometrically display the energy of the demand or supply that is building across various time frames. And it's this energy that drives or terminates trends.

Add volume to the analysis and you get an even clearer picture.