How the logic of supply and demand can change the future trading trend?

Question

March · Accepted Answer

The law of supply and demand is a theory that seeks to explain the relationship between the availability and desire for a product, such as a security, and its price. Typically, low availability and high demand boost the price of an item and high availability and low demand reduce its price.The law affects the stock market by determining the prices of the individual stocks that make up the market.The law of supply and demand seeks to explain the relationship between the availability and desire of a product and its price.In terms of financial markets, supply and demand determine the pricing of stocks and other securities.Economic data, interest rates, and corporate results influence the demand for stocks.Market dynamics, economic conditions and changes to economic policy tend to impact the overall supply of stocks.Both the supply and demand for stocks tend to amp up in response to initial public offerings, spinoffs, or the issuing of new shares.

Willerich · Answer

In the financial markets, Supply and Demand is the "primal force" that dictates price. Every other indicator—whether it's a Moving Average or an RSI—is simply a mathematical derivative of these two forces. The logic of supply and demand doesn't just explain the past; it creates the future price action through the concept of Order Imbalance. 1. The Logic of ImbalancePrice moves because of an inequality between buyers and sellers. Demand > Supply: Price must rise to find more sellers (the future trend is Bullish).Supply > Demand: Price must fall to find more buyers (the future trend is Bearish).Supply = Demand: The market enters a "range" or consolidation, building energy for the next big move. 2. How it Predicts Future TrendsTraders use Supply and Demand Zones to forecast where the trend will change or accelerate. Institutional "Footprints": Large banks and hedge funds cannot enter their massive positions all at once without moving the price. They leave "unfilled orders" at specific levels.The Revisit: When price returns to a zone where a massive move previously started, it often triggers those "unfilled orders." This creates a pivot point that starts a new future trend.Absorption: If price hits a Supply zone (resistance) multiple times, the "supply" is being "absorbed" or eaten away. Logic dictates that the more a level is tested, the weaker it becomes, leading to a future breakout. 3. Supply/Demand vs. Support/ResistanceWhile they look similar, the logic is different:Support/Resistance is a line where price stopped in the past.Supply/Demand Zones are areas where a major imbalance occurred.Example: If price drops 200 pips in 10 minutes, that origin point is a Supply Zone. The logic is that there are still thousands of sell orders waiting there, which will drop the price again if it ever returns. 4. Identifying the Future Flow (The "Curve")To trade this for profit, you look at the Market Curve:Wholesale (Demand Zone): Price is "cheap" relative to its recent history. Logic suggests the future trend will be up.Retail (Supply Zone): Price is "expensive." Logic suggests the future trend will be down. Summary Table: The Logic of Change       Market Condition                             Logical Outcome                                             Future TrendAggressive BuyingDemand exceeds available supply at current price.Upward TrendAggressive SellingSupply overwhelms available buyers.Downward TrendZone Test (1st Time)High probability of "unfilled orders" being hit.Trend ReversalZone Test (4th Time+)Orders are exhausted (Liquidity is gone).Trend Breakout

How the logic of supply and demand can change the future trading trend?

2 Answers

2 Answers

How the logic of supply and demand can change the future trading trend?

2 Answers

2 Answers

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