Forex Trading Supply and Demand: Full Description

The law of supply and demand or the law of supply and demand is one of the microeconomic concepts that can be applied internationally in various commodity transactions. Including that can be used to buy and sell foreign exchange (forex or forex).

in fact You can say that the Forex market and other investment tools It is the market with the most visible supply and demand information. which can be calculated and estimated using statistics How can this idea be used in Forex trading? Check out the following comments:

Definition of Supply and Demand

Supply (supply) is the quantity and price of goods that are available (sold) in the market. For example, the number of apples available in the original market is 50, and each fruit is sold for 5000. Therefore, the supply of apples is 50 pieces for 5000 rupiah per fruit

Demand, on the other hand, is the quantity and price of the item that the buyer wants. For example, let’s say someone wants to buy 20 apples for 4,500, so demand is 20 seeds for 4,500.

for normal products such as investment instruments The supply curve will slope to the upper right. while the demand curve slopes to the lower right. This means that if the price increases The number of products offered by the seller will increase. while the number of products that investors want will decrease. to understand more Take a look at the following pictures:

The Forex market and other investment tools are known as one of the most transparent markets for supply and demand. This is because you can view information about the quantity and price of supply and demand in the order book feature. What you see in the price chart is the result of the meeting point between supply and demand.

What Affects Supply and Demand in Forex

There are many factors that can affect forex supply and demand, here are some of them:

1. The price of the product itself

The first factor affecting the supply and demand of a commodity is the price of the asset or the commodity itself. In forex, it is the rise and fall of the price. (exchange rate) of a currency pair. In general, if the price of a currency pair goes up, demand will drop and vice versa

2. Price of related products

A product can be associated with another product in two ways, as a substitute (substitute) and an optional (add-on) product. The demand for key products will decrease. while the price of ancillary products increased The demand for key products will decrease. simple example Of these relationships are motorcycles with (replacement) cars and motorcycles with (optional) fuel.

In the context of forex, forex substitutes are other currency pairs. and other trading instruments such as stocks, mutual funds, or even crypto. If the IDR/USD exchange rate decreases, investors can switch to IDR/EUR, a stock or crypto that is considered more profitable.

The forex supplement is a supported product. forex tradinglike trading robot or broker services Reduce the price of trading robots and Broker service can increase the demand for forex trading

4. Economic conditions and policies of the country

Forex trading is a transaction in which the official currency of a country is traded. Consequently, the economic conditions and policies of the respective countries will have a significant impact on the supply and demand of this tool.

For example, the Fed’s interest rate hike policy. An increase in interest rates directly increases the demand for the dollar against other currencies, increasing the exchange rate (price) of the dollar against that currency.

Other countries’ economic policies can also affect the currencies of other countries. For example, Indonesian banks have been reported to buy dollars as reserve assets. (Foreign exchange) increases the exchange rate of the dollar against the rupiah. Therefore, forex traders need to be up-to-date with the latest macroeconomic and investor news in the city.

5. Expectations

People’s expectations about a country’s economy can affect the exchange rate of that country’s currency in the forex market. Of course, related to point 4. However, there are times when these expectations are unfounded.

These unfounded expectations often arise because there are scammers. (good or bad) about the respective currency It is this society’s expectations that indirectly affect market sentiment.

Understanding Supply and Demand Zones

Forex traders can use this concept of supply and demand to determine when to sell and buy an asset by:

1. Understand and analyze the factors that may affect supply and demand above.
2. Read and analyze the order book.
3. Understand, analyze and use supply and demand zones.

The supply zone is a good zone for selling Forex. This zone is formed by rising asset prices. This causes the asset to be overbought and possibly decreasing. Therefore, this zone is typically located at the top of the price chart.

meanwhile The demand zone is also a good zone to buy Forex. Because at this time the price of an asset is relatively low and has the potential to rise, so the demand zone is typically at the bottom of the price curve. to understand more Lets see the picture below:

How to Use Supply and Demand for Forex Trading

1. Analyze using long data intervals.

To accurately identify the supply and demand zone You can use historical price data over a long period of time, whether it is 1, 3 or 5 years. Make sure you can analyze multiple periods at once. So you can define short, medium and long term demand and supply zones. Mark the supply and demand zone with a square box.

2. Identify the actions of institutional traders

The actions of an institutional trader or dealer can confirm that the area can be a supply or demand zone. This is because institutional traders have large capital that can affect price movements quickly and violently. Institutional traders also have a team of experts whose analysis results are more mature.

3. Identify the reasons for sharp price changes.

In addition to Bandarmology, you can also identify common causes of rapid changes in asset prices with a number of factors that can alter the above supply and demand. The goal is when there is news about the issue. You are ready to open a trading position.

4. Use technical indicators to confirm

There are many technical indicators that you can use to define overbought and oversold conditions, such as Average direction index, Relative Strength Index and other technical indicators You can use this technical indicator to assess the supply and demand zones of historical price charts or to confirm future price movements.