Offers and Demands in Forex

[Igor Pereira]

Offer and Demand in Forex: The Structure Moving the Market

How to Identify Accumulation and Distribution Zones with Accuracy

By Igor Pereira
Financial Market Analyst
Founder of ExpertFX School

If we analyze points of reversal, strong tendencies or classical regions of support and resistance, we will realize that all these concepts have a common basis: supply and demand.

The dynamics between buyers and sellers is the structural core of the market.

Exclusive analysis for ExpertFX School – Igor Pereira:
“Price does not go up because it wants to go up. It rises because there is imbalance between supply and demand.”

Understanding this logic completely changes the way the trader interprets the graph — especially in volatile assets such as gold (XAU/USD).

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The Structural Concept

An upward trend only occurs when:

• Buyers absorb sales orders completely;

• Demand exceeds supply;

• The imbalance generates price displacement.

The movement continues until:

• Sufficient sellers enter the market;

• the purchasing flow is absorbed;

• New balance be established.

Similarly, low trends arise when:

• Supply exceeds demand;

• Buyers cannot sustain higher levels;

• The price moves to a new area of interest buyer.

Supply and demand drive all price discoveries, from local flea markets to international capital markets. When many people want to buy a certain item in limited quantity, the price rises until the purchase interest corresponds to the items available. On the other hand, if no one wants to buy a particular item, the seller will have to lower the price until the buyer is interested, otherwise there will be no transaction.

It is reasonably safe to assume that, after the price leaves an area of accumulation, not all buyers have been filled out and there are still open contracts at that level. Forex supply and demand traders can use this knowledge to identify high probability price reaction zones. Here are the six components of a good supply area:

1) MODERNED VOLATILITY
An offer zone usually shows close price behaviour. Many wicks of candles and strong comings and goings often cancel a supply zone for future negotiations.

The narrower the offer/demand zone before a strong breakup, the greater the chances of a good reaction normally next time.

2) OPPORTUNITY EXIT
You don't want to see the price spending too much time in a supply zone. Although the accumulation of positions takes some time, long intervals usually do not show institutional purchases. Good supply areas are somewhat narrow and do not last long. A shorter accumulation area works better to find re-entrys during setbacks aimed at capturing open contracts.

Good supply areas are somewhat narrow and do not last long. A shorter accumulation area works better to find re-entrys during setbacks aimed at capturing open contracts.

3) The SPRING
The “SPRING” pattern is a term coined by Wyckoff and describes a price movement in the opposite direction of the next breakup. Spring seems like a false breakup after the fact, but when it does, it makes traders take the negotiations in the wrong direction ( read more: High and low traps ). Institutional traders use spring to increase purchase orders and then raise the price.

4) STRONG FORCE LEAVING THE ZONE
This point is important. At some point, the price comes out of the supply zone and the trend begins. A strong imbalance between buyers and sellers leads to strong price movements and explosives. As a general rule, remember that the stronger the breakup, the better the search zone and more open contracts will normally still exist – especially when the time spent on accumulation was relatively short.

When the price goes from a strong upward trend to a strong upward trend, there must be a significant amount of purchase interest entering the market, absorbing all sales orders And then raising the price – and vice versa. Always look for extremely strong turning points; they are often high probability price levels.

5) FRESH
If you negotiate in areas of supply, always make sure that the area is still “fresh”, which means that after the initial creation of the area, the price has not returned to it. Each time the price revisits an offer zone, more and more previously unmet requests are met and the level is continuously weakened. This also applies to support and resistance negotiations, where levels become weaker with each subsequent recovery.

6) - Oh, my God.
The Rally-Range-Drop scenario describes a top market (or high oscillation), followed by a liquidation. The top of the market signals a level at which the sales interest became so large that it immediately absorbed all the purchase interest and even pushed the price down.

Amateur tightening allows good traders and patients to explore the misunderstanding about how market behavior consistently loses traders. It is reasonably safe to assume that above a strong top market and below a market fund, you will still find large groups of orders; traders specialized in false escapes know this phenomenon well.

HOW TO USE OFFER AND DEMAND?
Most concepts of negotiation seem great in theory, but only if you can really apply them is that it is worth investing your time and effort to master them. The concept of offer, demand and open contracts can be used in 3 different ways:

1 – REVERSION NEGOTIATION
We specialize in reverse trading and this is also the best use for supply and demand zones. After identifying a strong previous turn in the market, wait for the price to return to that area. If a false breakup occurs, the chances of a successful reversal are extremely high.

To create negotiations with even greater probability, combine false breakups with a momentum divergence and a false peak through the Bollinger Bands.

2 – SUPPORT AND RESISTANCE
The supply and demand zones are natural levels of support and resistance and it is worth having them in their graphics for various reasons. The combination of traditional concepts of support and resistance with supply and demand can help traders understand price movements in a much clearer way. Often, you will find supply and demand zones just below/above support and resistance levels. And while the trader of support and resistance is being expelled from their negotiation, the traders of supply and demand know better.

3 – STOP LOSS AND TAKE PROFIT
When it comes to making profits, supply and demand zones can also be an excellent tool. Always put your profit goal ahead of a demand/offer zone so you do not risk returning all your profits when the open contracts in that area are filled out. In short, you should always put your STOP LOSS within your profit whenever the order is positive, you can define this in strategies, every 30-50pips, or at each filling and breaking demand/offer.