Why Supply and Demand Works (US Dollar Index DXY example)
The real reason why supply and demand works.
For the US dollar index its not hard to read there was a massive drop from the big red candle (creating a supply area) and it is now making its way up to the initial price drop area. Based on Elliott wave pull back method we can foresee the 5 waves almost being played out except that we will still have to wait for no higher high and V formation before taking the sell. But have you ever wonder why the sell will work? If you are so confident that your trade is going to work, it WILL work.
When I was a high school student at age of 16 I opened up my first business selling GPS units. I branded my GPS as "Stevu", dreaming one day I might be competing with New Zealand's GPS tycoon Navman. At first there was only myself selling GPS, I could sell it for $300 NZ dollar per unit. However, soon I realised that other people start selling GPS as well. For $300 NZ dollar per unit no one would buy from me anymore. The person next door would sell it for $250, if I still want my business running I would then have to reduce it to $200. Not long after my new price I noticed that 10 more people start selling it and they've set their new price to $60 per unit. Given that it cost me to buy each unit (including shipping) $55, there is no way I could make money anymore. So my first business got shut down and I had to work for KFC to cook chicken for two years.
The same logic and concept apply to Forex, Stock, Commodities. Everything in our life is related with supply and demand, including every single business. Currency is a essentially a product. When a product is in demand, the price rises, if the same product is over supplied, the price will drop.
The big bearish red candle is revealed to us as "the market has over supply of US dollar, there is way more sellers than buyers". In order for the sellers to sell product they will have to reset competitive prices for buyer to buy US dollar. These sellers in real life are considered as "Goldman, JP Morgan, Morgan Stanley, other investment banks and even hedge funds".
These banks would put say for instance one billion worth of sell limit orders at the price of 97.44. But there aren't enough buyers to digest them all at once, only 1/3 of the entire orders would create a massive unbalance of buying and selling forces. the price then drops as indicated on chart.
When the price climb its way back to similar level (around 97.44), we all agree that there are still 2/3 orders being placed at 97.44, which is why every time the price reach 97.44 it bounces back (not a single pipe more). This is a good indication that this supply area is very robust. If you are going to do the sell, do you all agree that it would be much safer to sell with these investment banks (institutions)? Of course the answer is yes.
But before that We must accept that there must be a V formation to take out the buyers, in this chart it is revealed as the pink area. On the contrary there is also buying orders being set at such price. You will HAVE TO wait patiently until these orders gets consumed before taking the sell.
I hope these explains the whole logic. If you have questions or doubt please feel free to leave any comment.
Good Luck
Steven
For the US dollar index its not hard to read there was a massive drop from the big red candle (creating a supply area) and it is now making its way up to the initial price drop area. Based on Elliott wave pull back method we can foresee the 5 waves almost being played out except that we will still have to wait for no higher high and V formation before taking the sell. But have you ever wonder why the sell will work? If you are so confident that your trade is going to work, it WILL work.
When I was a high school student at age of 16 I opened up my first business selling GPS units. I branded my GPS as "Stevu", dreaming one day I might be competing with New Zealand's GPS tycoon Navman. At first there was only myself selling GPS, I could sell it for $300 NZ dollar per unit. However, soon I realised that other people start selling GPS as well. For $300 NZ dollar per unit no one would buy from me anymore. The person next door would sell it for $250, if I still want my business running I would then have to reduce it to $200. Not long after my new price I noticed that 10 more people start selling it and they've set their new price to $60 per unit. Given that it cost me to buy each unit (including shipping) $55, there is no way I could make money anymore. So my first business got shut down and I had to work for KFC to cook chicken for two years.
The same logic and concept apply to Forex, Stock, Commodities. Everything in our life is related with supply and demand, including every single business. Currency is a essentially a product. When a product is in demand, the price rises, if the same product is over supplied, the price will drop.
The big bearish red candle is revealed to us as "the market has over supply of US dollar, there is way more sellers than buyers". In order for the sellers to sell product they will have to reset competitive prices for buyer to buy US dollar. These sellers in real life are considered as "Goldman, JP Morgan, Morgan Stanley, other investment banks and even hedge funds".
These banks would put say for instance one billion worth of sell limit orders at the price of 97.44. But there aren't enough buyers to digest them all at once, only 1/3 of the entire orders would create a massive unbalance of buying and selling forces. the price then drops as indicated on chart.
When the price climb its way back to similar level (around 97.44), we all agree that there are still 2/3 orders being placed at 97.44, which is why every time the price reach 97.44 it bounces back (not a single pipe more). This is a good indication that this supply area is very robust. If you are going to do the sell, do you all agree that it would be much safer to sell with these investment banks (institutions)? Of course the answer is yes.
But before that We must accept that there must be a V formation to take out the buyers, in this chart it is revealed as the pink area. On the contrary there is also buying orders being set at such price. You will HAVE TO wait patiently until these orders gets consumed before taking the sell.
I hope these explains the whole logic. If you have questions or doubt please feel free to leave any comment.
Good Luck
Steven
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