SUPPLY & DEMAND ON THE FOREX MARKET

StereomaFX Academy

12/09/2022

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As you may or may not know, the foreign exchange market is all about supply and
demand. When there’s more demand for a currency than supply, the price
increases, and when there’s more supply than demand, the price goes down.
It sounds simple enough in theory, but what does this mean for you as an
investor? In this article, we’ll break down the basics of supply and demand in the
forex market and how you can use this information to your advantage.
HOW SUPPLY & DEMAND AFFECT THE MARKET
You’ve probably heard the saying, “supply and demand.” It’s a fundamental law of
economics that we all learn in school. But what does it mean, and how does it
apply to the forex market?
Simply put, when there’s a lot of supply, prices will likely fall. That’s because, with
so many products on the market, sellers have to compete with each other to get
buyers to bite. And the more sellers there are, the lower the prices will go.
Conversely, when there’s a limited supply, prices will go up. That’s because buyers
have fewer choices and can’t afford to be more selective about what they
purchase. With fewer products available, sellers can charge more without
worrying about losing business.
When demand is high, it’s a sign that prices will go up. Why? Because people are
willing to pay more for something in short supply. So, if you’re watching the
market and you see demand going up, that’s a sign that prices will rise. It’s all
about finding that balance between supply and demand. And when you
understand how it works, you can start making smarter trading decisions on the
forex market.
IDENITFYING SUPPLY & DEMAND ZONES
Supply and demand zones are where price movements occur because of a surplus
or shortage of currency units. They’re also known as “liquidity zones”. When you
know where these zones are, it’s much easier to make money trading the forex
market! Though they may seem simple at first, identifying these price levels is a
complex process requiring several steps.
First, you need to start at the current price level on your chart. If you do not know
where this level is, it can be challenging to determine what kind of reaction you
will get from the market if you enter a trade with a particular zone.
Next, look for explosive candles that occur just before or after these zones. These
are considered “explosive” because they indicate a large amount of liquidity
available for traders looking for opportunities in those areas. The origin of these
moves might seem random initially. Still, if you pay attention closely enough, you
will likely notice that these moves tend to cluster together in one specific direction
over time.
Finally, identify what caused these movements by looking at past events to
understand how they affect prices today (or tomorrow). In the forex market,
traders often use technical indicators and market sentiment to predict trends in
momentum. Others trade supply and demand zones by searching for areas of
imbalance. To trade these zones effectively, you’ll need to identify them correctly.
HOW SUPPLY & DEMAND AFFECT CURRENCY VALUES
You may have heard the saying that supply and demand drive the currency
market. And that’s true—if there’s more demand for a currency than supply, that
currency’s value goes up. But it’s not as simple as that. All sorts of factors go into
supply and demand, and they can change very quickly. Economic indicators,
interest rates, inflation rates, and geopolitical events include those factors.
So, it’s not just about how many people want to buy a specific currency—it’s about
what’s happening in the larger economy and how that affects how people trade
currencies.
FINAL THOUGHTS
A lot is going into supply and demand in the forex market, and it can be a
confusing topic to understand. But with a little effort and learning about the
different factors that play into supply and demand, you’ll be able to make more
informed decisions when trading on the forex market

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