For many years, the most popular strategies have been trading using supply and demand levels. It has several varieties, which, however, do not differ much from each other and do not bring the expected profits. So let's answer the question, how is it possible that this happens? How can we trade cryptocurrencies taking into account the actual, key levels on the chart?
Table of Contents
Analysis of cryptocurrencies using demand/supply zones
People who are just learning to trade through levels usually believe that the measure of strength of a given zone of demand or supply is the time since the last contact of the price with this zone, and the longer it is, the better. Reality shows that it is exactly the opposite – the fresher the zone, the higher the probability of reaction. This is supported by the fact that orders opened by institutions in a particular area have not yet been closed, so they must be defended.
The concepts of supply and demand on Forex or a cryptocurrency exchange are misunderstood,although paradoxically they are mentioned quite often. Usually, we draw lines quite objectively on the candlestick chart, and then we expect the price to react to them in a specific way.
Creation of supply and demand by institutional traders
The law of stock market supply and demand can be briefly summed up in two points:
- demand is created in order to be able to resell positions at the best possible price
- supply is created in order to be able to buy back positions at the best price.
As a beginner, we often do not pay attention to the reasons behind random price movements. The problem lies in looking at the market the way a retail trader brews. He trades so small money that he has no problems finding financial liquidity,which can help him open a position. Large capitals have a much more difficult situation, hence banks on the stock exchange must create artificial demand and supply to be able to execute their orders.
This can be especially necessary for investments in cryptocurrencies, where low liquidity problems are completely normal.
We assume that you want to sell a product at the highest possible price. What do you need to do? Surely take care of effective marketing, and what do you think is the best advertising? It is best to make buyers feel that they are buying a product worth much more than they pay for it.
Demand on the stock market is created in two ways – through increases or decreases, after which the instrument gives the impression of being undervalued. In the first method, the price breaks above the level on the chart, which most retail traders consider so important that after breaking, they should be able to keep the price afloat and start an upward trend. This is an example of a breakout above the resistance level.
The crowd will be very happy to buy from you, for example, Bitcoin,the price of which has broken an important line, because its logic says that it buys its shares at a promotional price, and therefore at the very bottom of the future bull market.
In fact, when someone offers you to buy a valuable item at a price lower than expected, it should raise natural suspicions.
Investments in the most popular cryptocurrencies, however, are governed by their own laws and there such opportunities do not raise doubts. One might even say that education in retail trading is based on a belief in magic. As an example could be the tool "Fibonacci Retracement".
It has been observed that the world is built around a certain proportion, later called the golden ratio. This gives such methods an aura of mystery and mysticism, which makes us more willing to trust their preachers. However, there is a problem on the cryptocurrency exchange, and on others as well. Mysticism doesn't make money! If it is impossible to explain in any logical way how a tool works, it means that it does not work. It can be inferred from this that when institutions suddenly begin to strongly increase the value of which financial instrument, they do so in order to create demand, serving them to profitably close their positions.
Artificial building of interest on the cryptocurrency exchange
To determine the value of a financial instrument, you have to work a little hard, especially in the case of cryptocurrency prices. This is because, especially in day trading, supply and demand is built using manipulated fluctuations.