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Supply and Demand – the fundamental cause of market movements
It’s easy for beginners to get caught up in exciting new words and to explore the intricacies of Fibonacci Bollinger exponential moving parabolic resistance zones, but perhaps equally important is asking yourself the question: what actually makes the price go up and down?
Taking this view not only gives you a better understanding of the financial system, but it also gives you a better understanding of how all other strategies work.
Supply is a term used to describe how much of something there is in existence, how many shares in a particular stock for example, how many government bonds have been issued, or how many units of currency there are in circulation. Supply is always finite. There is a limited number of shares in Apple. You can’t keep buying them infinitely, even if you had the money; eventually there won’t be any more to buy and you will own 100% of it! If you study economics, you’ll be familiar with a supply and demand diagram. In this case, the supply is fixed. It doesn’t matter how high or low the price is, the supply is always the same, as shown by the diagram.
Demand represents how much…
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Yulia10 avatar
Yulia10 18 May

good article

AND avatar
AND 19 May

Nice article! Thank you

Fizatata avatar
Fizatata 20 May

Nice, wish you stay winner????

nhamfx16 avatar
nhamfx16 21 May

Good article

AndreK avatar
AndreK 27 May

Good job.

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This article is to explain and show how a price flow actually works, thorugh some extremely simplified examples, in the attempt to show what is in my opinion the most important concept to understand about financial markets.
Basic concept
Everything starts from accepting a law: if there is an imbalance between supply and demand, as direct consequence a price will change. This is true for any exchangeable stuff, will it be a product, a service, an idea, a commodity and so on. It is an extremely simple concept indeed: more demand equals price up, more supply equals price down. If there is 1 unit of anything, and a lot of people looking to buy it, price will be rising till the point where only 1 will be the buyer.
On the other side if there are 100 units and few buyers, price will be correcting down to attract new customers till the point where all units will be sold.
Supply / demand flows
In a financial marketplace there is a continuous exchange and participants can be either selling or buying the same instrument, or even simultaneously selling and buying. An important difference with any other market, is that there is unlimited quantity of any given instrument, so price…
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loriana avatar
loriana 1 Dec.

Great read

hrustiashka avatar

Good article!

TInna avatar
TInna 2 Dec.

very good!

chuvee avatar
chuvee 2 Dec.

I like the article.


nice work

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This article will continue the "Trading Abc" series, going through a deeper analysis of what is a chart, how price flow is represented on different timeframes and how to consider a timeframe compared to another which are some basilar points I need to focus on before going through the main aspect regarding supply and demand and market behaviors.
If you are interested, here below the list of previous parts:
Everytime we look at a chart, what we see is the graphical representation of the consensus price for a given instrument over a specific period of time. This is done by a software elaborating all data and drawing a line for every new tick, so for example this is how the GBP / USD chart looks like:
In this case the chart represents all ticks coming in 20 minutes from 14:00 to 14:20, and they are connected each-other by a line so to simplify and make the visualization more readable by human eye. There are other ways to visualize the same price changes over a period, and the most commonly used is the candlestick chart, where every candle is a representation of all tick data over a specific frame of time. Let's say …
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olya2517 avatar
olya2517 5 Nov.


TInna avatar
TInna 9 Nov.

wery well!

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adiray avatar
adiray 16 Dec.

great article there

Starsailor avatar
Starsailor 31 Dec.

nice work

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In this article series I will go trough some of what in my opionion are the main factors to be considered in trading, based on my own personal views and experiences, and I will do in a kind of self - introspective way,so please, don't get stressed if for some reasons you find your self in opposite opinions.
What are we talking about when we speak of analysis? Some years ago when I started trading, analysis meant this:
What do you see in this chart above? I tell you: it is a compression of data showing market movements during a certain period of time. In this case, every 4 hours, the program will draw the so called "candle" to give us a visual representation, but if we would be able to zoom enough out a tick chart, we would see exactly the same moves. I say this because, I suspect this concept is not really clear to many people: what you see is data compression! Candles are those things we can light up on a romantic dinner with our partners.
There is a level where is more convenient to buy, and there is a level where is more convenient to sell (or not to buy), but how do we determine that level? Is it really so c…
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Uladzimir avatar
Uladzimir 11 Oct.

хорошая работа

klizthiac avatar
klizthiac 14 Oct.

very good article

Ruteale avatar
Ruteale 16 Oct.


sonjatrader avatar

well done!!

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All traders have heard the mantra “Cut your losses short and let your winners run but many don’t know how to do this effectively. In this article I’m going to share a great way to ensure that you stay in your profitable trades for as long as possible.
When considering any trade, most new traders focus on getting the right entry and spend less time thinking about how they will exit a trade, especially a profitable one. As a supply and demand I trader, I enter trades based on the levels I think will hold; shorts from supply and longs from demand.
Common advice is that you should exit at the nearest opposing level which for a short trade would be a demand level and for a long trade would be supply. The thing is, sometimes price goes straight through the nearest opposing level and on to the next one. It can sometimes go further. If you always exit at the closest opposing level then you are likely to miss out on some easy pips. The same is true for long trades if you exit at the nearest supply level.
One way to make sure you stay in trades for as long as possible is to monitor price action when it arrives at the opposing level. If you see signs that price will reverse then exit and if n…
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peachynicnic avatar

Thanks for your article . It is very informative with detail explanation and chart ! Yes no matter no trade or short trades, it is crucial to pay attention to the demand level. Thanks for your advice, a brilliant one.         

MaximumLots avatar

Your welcome. I'm glad you found i useful.

VictoriaVika avatar

MaximumLots Thank you for article! We can see here your great dedication and effort!

MaximumLots avatar

Glad you found it useful Victoria

Likerty avatar
Likerty 24 Oct.

That is very true - exiting trades is much more complicated task than entering new ones:)

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This article details a trade I took this past week, my first trade of 2014 in fact.
It was a simple setup from a level which I identified last month. After the level was confirmed I entered the trade and it moved quite quickly in my direction and ultimately to the target.
Daily Analysis
The main level from which I traded was on the daily chart as always, and this was a demand level. Price left the area in a very strong
fashion. The supply and demand imbalance was so great that price gapped away from the level and rallied over 200 pips. I normally look for drop base rallies for qualifying demand and though there is no real base at the level, the gap was very significant and it was clear that a lot of demand was present.
As I mentioned in a previous article I don’t trade directly from the daily levels themselves, I like to wait for confirmation and for this I go to the H1 chart. I waited for the nearest opposing levels on the H1 chart, (supply) to be broken which indicated that the daily demand level was indeed high quality.
The move which broke the supply levels came from a strong rally and there was a clear demand level on the 30m chart which I believed to be the sourc…
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Likerty avatar
Likerty 7 Jan.

Why dont you split your trade in to few separate entries? Close half before the enxt road bump and re-enter if it comes back to your entry point.. Such management halepd me a lot in my tradign.. Sadly such approach is imposible in the trading contest, because of contest rules limitations..

MaximumLots avatar

I've not tried that before. I'm usually all in till target or stop once I've done my analysis. I can see how that could be useful for limiting the downside though. I know some traders who do adopt that approach. It can also limit the upside and you end up being long with only half your standard lot size and price never comes back. I may test that approach on demo and see what the results are like. Thanks

Skif avatar
Skif 11 Jan.

Yes it is useful!

MaximumLots avatar

I'm glad you found it useful Skif

Airmike avatar
Airmike 19 Jan.

Very nice trade and good analysis

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Every trading method will have parameters for entries and exits. Some traders will decide to wait for confirmation and for
others, the fact that price is at a specific level is all the confirmation they need. This article looks at a great reversal pattern to use for confirming short trades.
I like to trade from higher time frame levels,mainly from the daily chart but I will always wait for confirmation before
considering an entry. Stops based solely on a daily level can be quite large and also price might not be ready to turn yet. Waiting for a reversal offers a safer approach to trading and helps to minimize losses and increase the reward to risk ratio on trades.
Considering the trend
To consider a short I want price to be at a level which I have objectively identified as supply on the daily chart. A level which I believe price will fall from based on a previous move from the same level.
When price hits a supply level the trend will usually be up. An up trend will often have higher highs along with higher lows and will sometimes have demand levels which would have formed during the up move. In an up trend you would expect demand levels to hold and supply levels to fail, so whilst…
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MaximumLots avatar

@Likerty. Yes indeed there are always multiple trends in play at an given time. The challenge is to identify the direction regardless of what seems to be lots of conflicting signals.

IGUMZFX avatar

This article is indeed very powerful. Please keep it up

Victor avatar
Victor 16 Dec.

well written

MaximumLots avatar

Thanks Victor and IGUMZFX

CJFX avatar
CJFX 27 Dec.

Nice article

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In my previous article I looked at some of the key factors involved in choosing the right supply and demand levels from which to
trade. In this article I’ll discuss multiple timeframe analysis with supply and demand levels.
Higher Timeframe
We always need to start analysis with the higher timeframes as they carry more weight. The levels take longer to form and price
travels far from them. They are therefore much stronger than levels on smaller timeframes. One of my favourite timeframes to look at is the daily chart.
The chart below is the daily chart of the USDCHF. On the chart you will see the proximal line of a daily demand level marked in blue and a supply level marked in red up above.
You will notice that there are some nice big red candlesthat came into the level which indicates that there’s not much to stop price on the way back up. There are some trouble areas visible on the chart highlighted yellow and these may be targets or places to take action for some, but the next major supply is much higher.
The demand level where price turned was quite an old one,formed back in November of 2011 so it is not visible in the image above. The origin and the initial move can be seen i…
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MaximumLots avatar

I do look at the weekly sometimes as well but my main analysis timeframe is the daily. That is what works best for me. The weekly is a bit too long term. Sometimes the daily and weekly line up so that's even better but not essential for me to take a trade

CJFX avatar
CJFX 30 Nov.

Thanks Max. When trading this method do you have to go right down to the 5m chart for entry or can you just enter from the hourly chart? Surely price doesn't have the breaking price action all the time

MaximumLots avatar

CJ you are right. Price doesn't always produce an engulf and retrace on the 5m chart so if you wait for that you will sometimes miss opportunities. It's up to each trader to decide what they look for in a setup and I like to wait. You may miss some winners but you will also miss losing trades too.

pippinaway avatar

this may be a lil out of point but just curious how long do you have to wait before your trade setups occur?

MaximumLots avatar

Hi Pippinaway. It varies but sometimes there are up to 3 trades a week and other times there only between 1 and 2. It all depends on what the market wants to offer. The profit on the trades means you don't need to trade every day though

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This article will explain some useful factors to consider when trading based on the supply and demand methodology. I will provide a brief overview of supply and demand before delving into how to identify high probability levels from which to trade. Supply and Demand Overview The only reason why price moves in any and all markets is because of an imbalance in supply and demand. The greater the imbalance, the greater the move. Strong moves in price away from a level indicate that not all orders were filled. For example, at the origin of a supply level, there are not enough buy orders to fulfil the number of sell orders. This is why price moves away in such a strong fashion. When price returns to those levels, the novice traders are buying into an area where institutions have their sell orders. Institutions and professionals sell to the novices then there are no more buy orders so price must fall again. The opposite is true for demand levels. In both cases, the novice traders provide the liquidity the institutions need to get their orders out in the market. The best opportunities to profit in trading are where we can buy at the cheapest price possible (wholesale prices) and se…
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Robert4 avatar
Robert4 8 Sep.

What method do you use to determine how you draw the supply and demand rectangles in terms of which candle of each zone do you choose? For example (in the case of a supply zone) Sam Seiden uses the top of the highest candle and the lowest part of the body of the candle in the group whereas you seem to be random as to what points of the candle you choose to draw you rectangles? Can you please explain. Thank you Rob

MaximumLots avatar

Hi amoths57, I'm glad you found it useful, the follow up article is here:

MaximumLots avatar

Hi Robert4. Whilst I try to look for levels which are nice and neat, SD levels are not always presented in this way. I know that some of the rectangles in the article are not tightly up against the candles but sometimes the rectangle tools on platforms don't allow for that. Over time you just get a feel for how to draw the levels and where supply is. For example the H4 chart is also a swap zone which also adds confluence. I hope that helps

CJFX avatar
CJFX 28 July

Is this the same MaximumLots from The concepts on that site seem similar to your methods

MaximumLots avatar

Hi CJFX yes you are right. There's more info on supply and demand trading on that website.

orto leave comments
Market Price Movement does not apply any principles of Technical Indicators like Fibonacci Ratio, Elliot Waves, Relative Strength Index etc. It is fully based on what majority of traders think and price moves in that direction. According to theory book, it is called Supply and Demand, which most of traders know, however only few of them apply it. Interaction of Buyers and Sellers determine price movement, and also it tells future price move.In this article, I am uncovering rules of Supply and Demand, and how to predict future price sentiments in long term.Introduction : CoT (Commitment of Traders)CoT report contains open interest, Long and Short positions data of market, in which trader hold position equal to or above to the reporting level established by CFTC, in three groups of positions, and these are classified into following groups:Commercial : Organizations, Companies etc. (Also called as Hedgers to protect their business capital)Non-Commercial : Large Speculators, Hedgers, Investors etc.Non-Reportable : Small Investors, Retail Traders like us etc.This report is published by Commodity Futures Trading Commission (CFTC) every Friday around 3:30 PM Eastern Standard Time (EST), a…
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drishti avatar
drishti 29 Mar.

Therefore, applying CoT is a little tricky, where you have not notice all details, not that if net long is keep rising that we should buy and net short is keep rising then we should sell. You have to look at peak points too, which you will notice once you start looking at CoT Report each week.

vancho avatar
vancho 29 Mar.

@drishti: I see a report every week and use it to trade. Good deal on them if you keep the deal a week. In any case, if you use it in conjunction with other analysis tools, the expectation will rise strongly in a positive direction. By the way, what do you think the euro for the next week based on the report?

sircris avatar
sircris 30 Mar.

Supply and demand is the basis of price generation of any asset. Fundamental analysis studies the causes and technical analysis studies the effect. Regarding the example in Fig. 2 is interesting to see how the Commercials are long across the entire period, while the Non-commercials are short at the beginning and long at the end. Very useful link to the data. Interesting article, brings something new and that also can be really useful.

doctortyby avatar
doctortyby 31 Mar.

I also use the COT report in my analysis...which information do you find most useful the speculators positioning or the commercials?

drishti avatar
drishti 31 Mar.

@doctortyby : As Non-Commercial (Speculators) has high presence in price movement, therefore I use Non-Commercial net positions as my bias of weekly direction.

orto leave comments
In the first article, I’ve explained various concepts which are critical to understand Volume Spread Analysis. In this article, I’ll continue to explain more insight on VSA as well as simple set-up we can apply to real trading.  We’ve seen every trader has their own way to look at chart, some using candlestick to identify pattern; some using line chart to identify swing high, swing low; some even not looking at chart at all, they argue that fundamental sentiment drive the market, so they follow their fundamental interpretation to make trade decision. For me, I use phases on to define background and trading direction.  In every market, we have two forces which interact and move the price: Supply and Demand. When supply is overwhelming demand, the big player will start distribution phase, after a period of distribution, the sell-off starts and now we have downtrend or mark-down phase.  After a period of sell-off, player will start to lock in profit as well as weak demand step in; price will retrace to 38.2% or 50% Fibonacci levels before it hits supply again and continue its downtrend. We call it re-distribution.   After a period of mark-down, big players start profit-taking as w…
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futures avatar
futures 13 Oct.

i liked your article..

ftnobre avatar
ftnobre 13 Oct.

Good article ! ...

luiz avatar
luiz 13 Oct.

Nice continuation of an interesting subject. Keep'em coming!

fx211pips avatar
fx211pips 15 Oct.

great article!+1

Victor avatar
Victor 25 Oct.

ok so far good work

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