Hey, guys!

I haven’t posted in a while, because I was busy with exams, but now I’m back in town . I made some research though and learned a great amount of things these days.

I realised that I did not really know why price moves in a certain direction, how the market really works and who is providing the money for the consistently profitable traders.

The truth is, like in any market, it’s all about supply and demand. No matter what Elliot Waves say, or Fibonacci retracements or MACD, or Stochastics, or Moving Averages tell us, it’s just the laws of supply and demand that govern the market. All you need to look at to be profitable is price. And I will show you why and how to do this in this article (I am not trying to act like a guru, I am far from being a professional, the truth is I am writing this article for me, more than you, so I get these important things in my head).

So what is supply and what is demand?

Well, the definition of supply goes like this: “Supply is the amount of something, such as a product or service, that a market has available”. So, where there are sellers, there is supply.

The definition of demand is: “Demand is the amount of the product or service that buyers want to purchase”. Where there are buyers, there is demand.

Price moves up in a chart if demand is greater than supply (there are more willing buyers than sellers, or the total amount of cash buyers want to get is higher than the total amount of cash that sellers are willing to give). Price moves down in a chart if supply is greater than demand (more willing sellers than buyers). This is very logical. Let’s say we have 10 buyers and 5 sellers. Once all sellers have sold, we have 5 buyers and no sellers. Price will rally up until it finds a good stack of sellers that are willing to supply buyers with products (in our case, cash). When there is balance between sellers and buyers, the market is stalling and moving sideways. When there is imbalance, the market is moving either up (demand higher than supply) or down (demand lower than supply).

How can we use this in our favour?

What is the logical thing to do when price is falling? If you thought “sell”, then you’re wrong. It’s not logical to sell after a period of selling. You can only make money if other novices like you will jump in and continue to sell after you do so. What does a business man do when housing prices drop 50%? Does he sell all his properties? Nope, he buys more, because it’s cheap. And because prices will eventually go back up again and he can sell at a bigger price than the price he paid.

So, it is ilogical to sell after a period of selling or to buy after a period of buying. It is logical to buy after a period of selling and sell after a period of buying. But how do you find the right time to buy or sell, so that your risk is very low, your stops are tight and your reward potential is high? This is where levels of supply and demand (support/resistance) come in. So, look at these examples:

EURUSD supply and demand trading

You can find levels like these each and every trading day. You just have to pay attention to what price does and find the zones of balance and the origins of imbalance. A zone of balance in price becomes a zone of supply/demand once price breaks out of that area (supply beats demand or vice-versa).

To be a winner, you must control your emotions. People are inclined to buy after periods of buying, because they don’t like taking risks. They feel more comfortable if someone else shares that risk. So they see people buying and they jump in with the herd. If you’ve done this (or doing it now) as a novice, I can guarantee you’ve often faced situations when you bought/sold and price imediately reversed. You probably thought your broker is playing against you or maybe there’s a webcam in your room and someone is watching what you do and plays against you. You didn’t realise that you just bought into a supply level or sold into a demand level. You went with the herd, thinking there’s low risk, but the truth is that’s the biggest risk you can take. The herd provides money for the elite few. It’s a harsh truth, but that’s what it’s all about. You have to act contrary to your emotions. Act rationally, not emotionally. I already discussed that it is irational to sell after a period of selling or buy after a period of buying.

Trading is simple if you keep it simple. As I write this article, I am sure that an elite few will succeed in playing it right. The rest will just provide those few with lots of cash. There are two types of traders in this market: traders with experience and traders with money. Those with money gain experience and those with experience get the money from the novices. Identify the novices in your chart and play against them.

If someone is interested in more info, I will make a video in my spare time. Just drop a comment.

Good luck next week!

Written by Marian Victor Busoi

( a.k.a. ME )

I had an exam today, but I got home earlier and put on the first trade at 10:45 GMT. Last one was at 15:19 GMT, when I decided to take the day off. So that’s almost 5 hours of trading, in which I earned 120 pips. I still have problems with letting profits run, though. I could have easily taken between 200 and 300 pips in total, but I closed early on most trades. Anyway, that’s still an awsome score. Imagine taking 100 pips per day each day. That’s 2000 pips in a month.

Well, this was a very good day and I’m looking forward for tomorrow. Hope you had a good trading day.

Cheers!

Please excuse my poor English and enjoy the video!

How to draw support and resistance lines from Marian Busoi on Vimeo.

EURUSD support and resistance lines. Click on the image to zoom in

My EURUSD H4 chart for 18th January 2009

Or click here to see the “mind-map” online.

Cheers!

GBPJPY support and resistance lines. Click on the image to zoom in

My GBPJPY H1 chart for 18th January 2009

Or click here to see the “mind-map” online.

Cheers!