Sam Seiden
Independent Analyst
Supply and demand is not a new concept… Adam Smith wrote of it extensively in many of his publications including his prized work entitled, The Wealth of Nations. There are, in fact, many theories regarding how and what affects supply and demand. With the entire goal of this quest being to gain a trading edge by figuring out where price is going.
Just watch 15 minutes of CNBC or Fox Business News and you will likely hear just enough theories and view points to become very confused. Most of us would agree that in any market, the movement of price is simply a function of an ongoing supply and demand equation. Where everybody differs in opinion is the question of what is affecting supply and demand, and this also happens to be what everyone focuses on. Answering this question correctly will give you that trading edge.
This is the talk that dominates financial news channels 24/7 around the world. Talk of Iran, Syria, what will happen with interest rates and so on. Smart phones run out of battery life trying to keep up with all the economic data coming through. Again, the focus on all these influences on supply and demand is to attempt to determine where price is going to turn and where it is going to go.
What I do very different than most is simply ignore all those influences and my focus goes right to the main question, “Where is price going to turn and where is it going to go.” I mean, I literally ignore any and all of the news, data and information that has an influence on supply and demand. 100% of my focus is on one thing, the actual supply and demand itself. Why do I care about reasons people and institutions are buying and selling if I know where they are buying and selling? Price changes direction at price levels where supply and demand are out of balance so my focus is identifying the supply and demand imbalance itself, not trying to figure out what is going on in North Korea. And even if I did spend some time on Microsoft’s balance sheet or dissecting the Greece issue, I would end up with the same information millions of other people already have so there would be no trading edge for me. I have enough trouble trying to figure out how they light the cheese on fire in the restaurant. I’m kidding but you get the point…
Specifically, I am focused on where big institutions are buying and selling in markets. Many people will say that’s not even remotely possible. If you’re in that camp, I respectfully disagree. You can identify where big institutions are buying and selling in markets with a high degree of accuracy if you know how to quantify institutional demand and supply on a price chart.
I started my career on the floor of the Chicago Mercantile Exchange facilitating institutional order flow so I know what that picture looks like on a price chart. The more you understand how to quantify institutional demand and supply in any and all markets, the less you need to focus on anything else. The point of this piece is to make sure you are focused on the right information when building your trading strategy. If not, you may find one day that you have figured out everything there is to know about the issue in Greece (including how they start the cheese on fire) only to realize that this in no way, shape or form is going to help you make money speculating in the financial markets, in other words, you have no trading edge.
Hope this was helpful. Have a great day.
Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer. Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. Risk Disclosure: Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.
Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
RECOMMENDED LESSONS
Making money in forex is easy if you know how the bankers trade!
I’m often mystified in my educational forex articles why so many traders struggle to make consistent money out of forex trading. The answer has more to do with what they don’t know than what they do know. After working in investment banks for 20 years many of which were as a Chief trader its second knowledge how to extract cash out of the market.
5 Forex News Events You Need To Know
In the fast moving world of currency markets where huge moves can seemingly come from nowhere, it is extremely important for new traders to learn about the various economic indicators and forex news events and releases that shape the markets. Indeed, quickly getting a handle on which data to look out for, what it means, and how to trade it can see new traders quickly become far more profitable and sets up the road to long term success.
Top 10 Chart Patterns Every Trader Should Know
Chart patterns are one of the most effective trading tools for a trader. They are pure price-action, and form on the basis of underlying buying and selling pressure. Chart patterns have a proven track-record, and traders use them to identify continuation or reversal signals, to open positions and identify price targets.
7 Ways to Avoid Forex Scams
The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?
What Are the 10 Fatal Mistakes Traders Make
Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.
The challenge: Timing the market and trader psychology
Successful trading often comes down to timing – entering and exiting trades at the right moments. Yet timing the market is notoriously difficult, largely because human psychology can derail even the best plans. Two powerful emotions in particular – fear and greed – tend to drive trading decisions off course.