Sam Seiden
Independent Analyst
For any market speculator, the most important function of your routine is proper analysis of supply and demand. This leads to the two important pieces of a trade/investment:
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Market Turning Points – For low risk/high reward entries and exits
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Large Profit Zones – Profit potential
As I have written about before, one of the most important pieces of that analysis is knowing the objective profit zone on a given trade. The other day on our Supply and Demand grid, we used our rule based supply and demand analysis to attain a very low risk, high reward, and high probability trading opportunity. I will explain for your review in hopes that you can understand how important the Profit Zone really is.
This opportunity was found in the NASDAQ futures using a very small time frame. Notice the supply level on the grid and chart #1. We know this is a supply level because price could not remain at the level and declined from the yellow shaded area. Price only declines from supply because there is more supply than demand at that level. Notice the first time price revisits supply on chart #2. Our rules tell us that novice traders are buying here. We know this because these buyers are buying AFTER a period of buying, mistake number 1, and they are buying at a price level where supply exceeds demand, mistake number 2. The objective laws of supply and demand ensure that the trader who commits these two mistakes will consistently lose. We simply sell short at the level with our protective buy stop just above the level. The lines/level represent the “supply zone”. As active traders, we determine these zones each day. As longer term investors, we do the same thing in the larger time frames.
Supply Demand Grid July 26th – NASDAQ (NQ)
Let’s now discuss the key point that made this trading opportunity such high probability. Notice the rally in price on chart #2 up to the grid supply zone. It is a strong rally built with NO DEMAND levels during the rally, just nice big green candles. This means that as soon as price reached supply, it was likely to fall very quickly back through that area. We require strong rallies in price such as this one to our pre-determined supply levels as that increases the odds of our short position working. In other words, price reached our supply level and we shorted at supply for a move down through the very clear “profit zone”.
Trading Tip: Consider identifying a Profit Zone before Supply and Demand levels to arrive at strong trading/investing opportunities.
Hope this was helpful, have a great day.
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Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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