Even if you don’t know Adam Smith from Adam, you’ve probably heard about supply and demand. Way back in 1776, Smith – a Scottish philosopher known as The Father of Economics – took a headlong dive into supply and demand in The Wealth of Nations, coming up with concepts like the “invisible hand” of the marketplace, which magically finds the price points and production volumes that will benefit the most people.
It isn’t actually magic, of course. Here’s the basic gist: the higher the price you set, the lower the sales volume you’ll generate. If you try to crank out more goods, you’ll have to drop your prices if you want to move all that product – but the fewer goods you produce, the more scarcity you’ll have, allowing for higher prices. Somewhere in the middle, you’ll find the price point that strikes the perfect balance between supply and demand.
You can use the same general concept when you’re trading cryptocurrency. Right now, someone is buying crypto; elsewhere in the market, someone is selling. If you can identify larger “supply and demand zones” ahead of time, you can predict which way the invisible hand is pushing the money. Then you can jump in and grab some of that money for yourself with a timely transaction.
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How To Identify Supply And Demand Zones
So where do you find these zones? Remember, you’re looking for situations where supply and demand are out of balance; where demand is higher, prices go up, and where supply is higher, prices go down. Your job is to identify those imbalances and get into the market before the prices move.
Or at least before they move too much. Unless you’re Nostradamus, you’ll only see these zones once the price starts shifting – think of the “zone” in question as a range of price points. In a demand zone, that price point will start to rise considerably, and in a supply zone, prices will be falling under heavy trading.
This is where the legwork comes in. By paying attention to those ubiquitous price charts with their red and green “candles,” you can see which crypto markets are experiencing the most volatility. Then you can act accordingly by either buying or selling.
How To Profit From Supply and Demand Zones
Before you break open that piggy bank, make sure to do your proper research on the digital coins you’ve identified as potential investments. Why might that particular coin be in a demand zone? How high might it go? Read the newswires, study the historical price levels, and you’ll be closer to pinning down the answers.
Now that you have that information, you can pick the right time to jump into the market. Knowing when to pull out is important, as always; these coins are indeed volatile, so you’ll want to protect yourself with the usual old-school “stop-loss” levels – and lock in profits at certain price points.
#HODLGANG
That’s if you’re not just going to buy that coin and ride it to the moon. Speculating on Bitcoin and other crypto is exactly that: speculative. Every transaction you make comes with risk and reward, so if you’re going to ride that snake, you might want to make things less slippery (and pay fewer transaction fees) by just buying in and holding on. Again, it depends on the coin in question, and your risk tolerance in general.
On the flip side, instead of going long in the demand zone, you could choose to roll the dice and “short” a coin during a supply zone. These are the zones where supply is high and prices are falling; you can take advantage by borrowing a certain amount of that coin, then selling it to someone else immediately, confident that you’ll have made a profit once you’ve paid back your debt at the lower price point.
This way lies chaos. When you go long in a demand zone, your risk is capped somewhat in that the coin can only go down to zero, meaning you can only lose the amount on money you put in. When you go short in a supply zone, your potential losses are – well, maybe not infinite, but you can lose more than just your shirt if the coin you’re shorting suddenly takes off.
A little chaos can be healthy, mind you. Dabble in any of these things according to your bankroll, experience and comfort levels, and you’ll be in the right zone for maximizing your crypto investments.
