Introduction to Supply & Demand

Introduction to Supply & Demand

Supply and demand are fundamental concept in economics that studies how buyers and sellers interact to establish market prices of goods and services.

The theory states that if the supply of a commodity is high and the demand is low, this generates excess which drives prices down. And if the supply of a commodity is low and the demand is high, this creates scarcity, driving prices higher.

In the forex market, the same rule applies:

If the supply of a currency is high and the demand is low, the price goes down.

If the supply of a currency is low and the demand is high, the price goes up.

When traders buy low and sell high, they are buying at demand levels and selling at supply levels.

Supply Zone

A supply zone is defined as a price area where sellers exceed buyers. Supply zones are located above the current price where there is strong selling interest.

Demand Zone

A demand zone is a price area where buyers exceed sellers. Demand zones are located below the current price where there is strong buying interest.

Unfortunately, novice traders are doing the exact opposite of what professionals do because of conventional technical analysis.

Basically, novice traders buy high when the price is at the supply zone and sell low when the price is at the demand zone.   

The constant battle between buyers and sellers drives the market up and down based on who’s in control (sellers or buyers).

In order for you to trade forex using supply and demand, you need to identify these price levels; where demand exceeds supply and supply exceeds demand, and trade them accordingly to generate profitable trades.