Supply and Demand Question

[fraknycjr 10]

I was watching a chart of the NZD/USD on the hourly time frame and What I expected to happen with the price did not work out. I'm looking for opinions of people more experienced than myself to give insight into what I missed.

 

On 9/6/2011 the pair dropped to a demand zone at the .81994 to .82330 price zone. I expected the pair to go back to the .84571 to .85500 supply zone where I would short the pair. Instead it turned at .83821 and proceeded down and through the .81994 to .82330 price zone.

 

I have attached the chart I am looking at. Am I not going far enough out time wise and missing levels or am I totally missing the real zones.

 

Thanks

 

Frank

[ichimogul 10]

On 9/6/2011 the pair dropped to a demand zone at the .81994 to .82330 price zone. I expected the pair to go back to the .84571 to .85500 supply zone where I would short the pair. Instead it turned at .83821 and proceeded down and through the .81994 to .82330 price zone.

What are the reasons you think it will go back to that level (.84571 to .85500)? .83821 level is a previous support (around 27-28 Aug). It is also a resistance (around the 6th Sep). Notice the big red pin bar which has its upper wick touching the .83821 level. So logically, your next level of S&R is .83821.

[fraknycjr 10]

Ichimogul,

 

Thank You for your reply and analysis it was very helpful. My thoughts on the .83821 were that on Sept 5th it was a drop base drop, I discounted the Aug 27th support because it was a rally base rally. At .84491 it does a rally base drop which is around the zone where I thought it would go to and turn around.

 

I'm still very new to all this and learning a lot as I go.

 

Thanks

 

Frank

[FXTradeX6 10]

Not a very good demand zone. The harder the move in price away from a zone the better. Look for those big spikes away from a zone, those are the good zones.

[MCM 10]

Market was cascading lower. You had the direction right. Half the battle one.

The market move on the 5th/6th looks around 200 ticks or so - thus I would call that a reasonable place to place a pivot low (8270 area).

As soon as the market rolled over and went below that Sept 5th low - that 83821 high becomes a new pivot high. (it isnt an important high UNTIL that previous low is taken out)

 

On a market going down - a reasonable entry is to short near previous pivot highs. Thus this retracement to that area was logical place to short it with stop above.

 

Remember - a pivot high isn't confirmed until their is a new pivot low achieved. (and vice versa - a pivot low isnt confirmed until a new pivot high is achieved).

 

Any moves within the previous swing (from pivot high to pivot low) is just noise. Nothing more.

 

Your way ahead of where I was when I was a beginner...my dumb arse would have been trying to bottom pick. Congrats.

[SIUYA 11]

I think this also highlights the issue with waiting to short rallies or buy dips.....The extent of the retracement can never be known. All you can do is watch and wait and at some stage be prepared to pounce, OR place your levels and hope you get hit.

This is the major difference between selling/buying breaks IMHO - you should get every break as the level of the break is clearly defined beforehand and the nature of the break to be a break means it has to be a break (if that makes any sense).....but how do you define a retracement.....30%, 50%, 61.2%.

While defining ideas and thoughts is great, dont get too caught up in the jargon of supply zones, support zones, rally base rally etc....it is precisely this which can be so hard to define.

[FXTradeX6 10]

An example of the kind of price spike you want to see off of a zone. This is a weekly chart, but you get the idea. Look for these strong spikes no matter what time frame you're working with.