USDCHF 11-22-06

11-22-06

USDCHF

Here is a small lesson about trading using supply and demand. It is important because it distinguishes supply and demand from support and resistance. Unlike the person who trades using support and resistance, I believe that each time price visits an area of demand, the odds of
a trader looking to buy at that price are reduced. The trader who uses support like pivots or moving averages expects that support to be stronger each time the price trades there. I have heard that some traders believe that a trendline is not significant unless it is tested at least 3 times, for example. I am looking for the highest odds, lowest risk trade I can take. I will only trade the first time and possibly the second time that a price visits an area of supply or demand. If I do trade the second time it has to be a trade that is going with the short term trend. Let's look at an example.
In the email from yesterday, I mentioned trading the USDCHF long at 1.2410 and taking a partial profit near the 1.2440 area. That 1.2410 area of demand produced a small bounce up to 1.2430 the first time it was tested at around 10:00 AM Central. The second time that the USDCHF traded down to the 1.2410 area, the bounce went up to 1.2425. Each time that the USDCHF traded near the area of demand the number of willing buyers was reduced until there were only sellers left and the USDCHF traded below 1.2400. I would have only traded long at 1.2410 the first time since the short trend in the USDCHF since Friday has been down.
This morning the USDCHF is bouncing off the 1.2378 area of support. Once the last buyer buys in that area the next area of demand is near
1.2350 followed by 1.2300. I would prefer to wait until one of those areas of demand produces a bounce up to the 1.2410 area to take a short trade since the areas of demand at 1.2378 and 1.2350 have been visited once already this month.