Tuesday, January 6, 2009

How to spot strong buyers and sellers in forex trading?

Japanese candlesticks make it easy to see buyers or sellers are controlling the market . Which group is about to lose or regain control. Candlesticks (price) represent traders' beliefs and expectations and hold the true objective information traders need when trading.

The markets are purely a function of supply / demand, and human behavior. Trading opportunity exists when this simple and straight forward equation is out of balance. The logical question is: What does this look like on a price chart?
Supply = Resistance = Sell

Demand = Support = Buy





Books teach how to trade based on chart patterns, indicators and oscillators on the chart, which can lead to faulty trading, as indicators and oscillators are very lagging. The problem is that these patterns are based on the premise that traders need a bullish picture to buy and a bearish picture to sell. In fact, an astute trader gets interested in buying well before pretty green candles appear on a chart.

The way to make money trading and human nature are inversely related. Majority of people are only comfortable buying if others have bought. They avoid taking risk unless others are willing to share the risk. Traders and investors tend to buy on good news and sell on bad news. Trust me, good news and nice comfortable green candles don't bring prices down to areas of support (demand), which is where the astute traders buy. Unfortunately, it usually is the bad news that tends to offer the low-risk/high-reward buying opportunities.

1 comment:

Tony Chai said...

Hi Tony :

Very insightful. Thanks,

Tony Chai