Introduction To Supply & Demand Trading Basics
As humans, we are unfortunately conditioned through education and trading books, that we should look to buy when the price is high and sell when the price is low. This is the investment advice instilled in us from an early age.
“buy stocks when they are rising, they can only go higher” but this is further from the truth!
And more often than not, people will end up selling their shares at a knockdown price, when they witness prices plummeting and the pain to hold them is just too much!
Yet in every other aspect of our lives, we will always look to buy when something is a bargain and try and sell it for as high a price as we can get. So why should this be any different within your trading? We’ll, of course it shouldn’t, and this is where the professionals differ from the retail crowd of traders. They will always look to buy low and sell high, just as your local car dealership might do.
The professional traders will look to buy at wholesale prices and sell at retail prices. At this point, a transfer of funds takes place from novices accounts to the pros. The point at which this takes place is often what we call a supply or demand zone.
For you to actually see a supply or demand zone formed, it is once price speeds away from an area on the chart. It indicates this is where there was professional traders buying or selling the markets. Once this has happened, your job is not to follow in the footsteps of the retail trader and to chase the move. But, to wait for price to return to the zone where you can buy or sell at a “wholesale” price.
Take a look at the chart below, where you will see price speeds away creating a demand zone. It is at this zone, where the professionals look to buy with having preset buy orders waiting to push the markets higher once again.
Within the supply and demand trading basics, you will get to learn how to spot these areas within your own charts. With learning how to identify correct zones of supply or demand on your charts, and the correct way to draw these zones. You will also get to see when not to trade at an area of supply or demand, and when is the perfect time to trade!
Hopefully you’ve now got a solid idea of what supply and demand is all about, keep an eye out for tomorrow’s email with video lesson two on “understanding supply and demand zones”