Today I realised one important thing about trading. It’s very important how you start the day and how you gauge market sentiment at the begining of the trading day. Many times the same trend goes on the entire session. If you are wrong in the morning, you may not be able to adapt/accept that your analysis was wrong and you will lose over and over again.

Ability to adapt and get in tune with the market is a crucial element for traders. You have to become a market chameleon.

So, what I did today was that I made a fast analysis, without thinking too much about what’s happening. I was long on all three pairs (EURUSD, GBPUSD and EURJPY). The trend was actually bullish, but I didn’t pay close attention to a few other important facts:

- Friday – Fridays tend to usually move prices against the weekly trend, due to profit taking (last day of the week, some big guys close big positions in the market);

- Candlestick patterns at resistance – I did watch these, but I missinterpreted them. I wasn’t paying attention to what the market was telling me.

Let’s take this GBPUSD H1 chart for example:

Lesson learned!

Lately I’ve been using Bollinger Bands to confirm my supply/demand trades and found them to be pretty efficient. Bollinger bands give you, in my opinion, both the power of an oscillator and that of a moving average. They let you gauge the trend and also tell you when a market is overbought or oversold.

A market is trending up (bullish) if price is moving between the upper and the median bands.

A market is trending down (bearish) if price is moving between the median and the lower bands.

A market is overbought if price is piercing the upper band.

A market is oversold if price is piercing the lower band.

These clues, however, are not entry signals. They are only used to confirm the strength of S/R zones. Let’s take a look at one of the three trades I just made a few minutes ago, which are currently at +75 pips, but should bring me 160 pips if they go well

Long GBPUSD

Reasons for going long were:

- price was rejected from 1.6517, which is near 1.65 (a good demand level and also a round number);

- price was rejected from the middle band, while it was trending up (trading between the upper and the middle band);

- inverted bullish hammer showing reversal signs;

I find that taking trades like these (with good confirmation) adds up to your win ratio pretty good.

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 )

Please excuse my poor English and enjoy the video!

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

My Forex method

Click there to see a nice “mind-map” of my Forex trading method.