How provide and demand influence the cost of products, monetary assets or foreign exchange is generally a query that traders pay out near awareness to when creating trading selections. Let’s master with Coinlive how provide and demand operates in the SMC process by the following posting!
SMC Trading Method (Part two): Supply and Demand
What are provide and demand?
Supply and demand are vital and typical ideas in daily existence, which influence the shopping for and marketing approach and financial actions. They signify the romance in between the amount of a solution offered and the cost that customers are inclined to pay out for that solution.
How provide and demand do the job
The romance in between provide and demand generally applies to any industry with only two major parts: cost and amount.
For illustration: the additional the cost increases, the significantly less the demand for that supply of products decreases, and the additional the cost decreases, the additional the consumption of that supply of products increases.
- If Supply > Demand the cost will reduce.
- If Supply < Demand the price will increase.
Just like in life, when there is too much of something (too much supply), it is useless or of little value, like pebbles.
If something is rare like gold (it is limited and therefore there is a lot of demand), its value will increase.
When we see that supply and demand meet, that area is called the acceptable price area. This is where buyers and sellers agree on an item for a certain price.
For example: if a person sells a TV for 1,000 USD and finds someone willing to buy it for 1,000 USD. So the seller values this TV at or above $1000 and the buyer agrees to purchase only at this price or less.
Therefore, supply and demand play an important role in everyday decision making and also apply to financial products. Financial institutions and banks also use this concept to define their investment strategies.
Why are supply and demand important to the SMC method?
SMC traders are required to understand supply and demand because:
- Supply and demand help us understand the nature of all markets, including stocks, foreign exchange, cryptocurrencies,…
- Understanding the nature of supply and demand helps us see the stages of Smart Money.
When Smart Money wants to open orders, it often trades large volumes. This requires them to break orders into smaller transactions for execution. When this action occurs, it leaves traces in the market, which individual traders like us can use to detect and place trades.
By understanding this information, SMC Trader can participate in transactions according to Smart Money and reduce unnecessary risks.
How to determine supply and demand zones on the price chart
The supply and demand zone, also known as the price range (Range), is an area created by correction and accumulation.
This range can be easily recognized in the price action (Price action) tends to move laterally.
The range is displayed in all trading time frames. When the market moves sideways, or can be said to be in Range, it is a phenomenon that trades and transactions of large funds continuously take place to accumulate their positions. Then the price will have the phenomenon of breaking, rising or falling to indicate which side is dominant in the market at that time. However, the price will then return to that range.
How the range forms the demand area
How the Radius forms the Supply area
When prices move rapidly during a breakout, this represents an imbalance in the market and the price will move quickly to find orders to match (also known as liquidity seeking) to rebalance supply and demand.
So, consider placing an order when the price returns to the Range instead of entering a position just when the price crosses the limit.
In this article, Coinlive has helped you get a more general overview of the Supply-Demand zone and how to observe how prices move. You can check yourself on the chart and perform back tests to better understand how to recognize and place orders with the mentioned theory. See you again in the next articles!