Brandon Wendell, CMT
Brandon Wendell
Newer traders sometimes struggle when trying to identify supply and demand zones. My best advice is to practice and see if your zones are lining up with those identified by your instructors in the Extended Learning Track or the Pro Picks.
There is also an additional method to identify potential turning points in the markets. This method is not to replace identifying supply and demand, but is rather a way to supplement and perhaps to confirm those levels. This is not a magical tool that will work all the time. The tool/method I am talking about is floor trader pivot points.
The pivot points were created to give professional floor traders at exchanges a way to determine possible support and resistance without having to refer to charts. You may notice that I used the terms support and resistance rather than demand and supply as these are not the same things. The terms support and resistance refer to traditional technical analysis techniques and have been shown by many traders not to be as accurate as the patented supply and demand strategy from Online Trading Academy.
That being said, the support and resistance of pivot points may help to identify or even strengthen supply and demand zones found in your charts. The pivot point itself is simply the previous day’s high + the previous day’s low + the previous day’s close divided by three. This pivot point can act as a support or resistance level for price and can be applied to equities, Forex, and futures charts. Wait a minute! Not so fast, don’t the futures and Forex trade 24 hours a day? How can we get a close price? Actually, the trade price at 5:00PM New York time (EST) is used as the “closing time” for our calculations.
By using this pivot point number and some additional mathematical calculations, we can derive several additional support and resistance numbers. In fact, there are calculations for four support and resistance levels. We can use these pivot support and resistance as possible entry and target points for trading.
Some trading platforms automatically draw pivot points on your chart for you, but if you are creating your trading plans the night before you can easily add the pivots to your chart. There are several websites that will give you the pivot points. One that I like is www.mypivots.com. On the site there is a pivot point calculator where you can enter the numbers and receive the pivot points for any security.
Although the main use for the pivot points is intraday charting, you could plug in the weekly or even the monthly high, low, and close to determine the future support and resistance for swing and position trading. Remember, these pivot points should not take the place of the supply and demand zones that you visually identify on your charts. Those turning points were caused by the emotions of investors and traders and therefore carry more weight. These people will remember how they triumphed or were hurt at those price levels. Since pivot points do not carry those same emotions with them, they only work if traders believe they work and act in the same manner when price reached those levels.
Fortunately, they have gained enough popularity that they are almost a self-fulfilling prophecy on many stocks and markets. So, while not the end all, pivot points could help you determine the turning points of a stock, sector, index, currency, etc. This can be a valuable tool in your trading arsenal. So until next time, may all your trades be green and your losses small!
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD slumps below 1.1750 as USD benefits from risk-aversion
EUR/USD comes under renewed bearish pressure in the European session and trades below 1.1750 following a recovery attempt earlier in the day. The US Dollar gathers strength and weighs on the pair as investors seek refuge in the wake of Israel and the United States' joint attack on Iran.
GBP/USD targets 1.3500 barrier near moving averages
GBP/USD rebounds from the daily losses, trading around 1.3450 during the Asian hours on Monday. The technical analysis of the daily chart indicates an ongoing bearish bias, as the pair trades within a descending channel pattern.
USD/JPY: Japanese Yen remains depressed vs. USD amid Middle East tensions; lacks follow-through
The USD/JPY pair catches fresh bids at the start of a new week and climbs back closer to last week's swing high, though it lacks follow-through and remains below the 157.00 mark through the Asian session. A coordinated US-Israel military strike on Iran marks a dramatic escalation of geopolitical tensions and unsettles global markets.
Editors’ Picks
Oil retreats from seven-month high, WTI holds above $71.00
Cure oil prices started the week with a huge bullish gap and the barrel of West Texas Intermediate (WTI) touched its highest level since June above $75 as markets reacted to the closure of Strait of Hormuz following the US and Israel attacks on Iran. Although WTI retreats in the Euroepan morning, it holds comfortably above $71.
Gold surges on safe-haven demand, closes in on $5,400
Gold benefits from intense risk-aversion on Monday and climbs toward $5,400, setting a fresh monthly-high in the process. Tensions in the Middle East remain high as Israel and Hezbollah continue to exchange strikes following the US-Israel joint attack on Iran over the weekend.
EUR/USD slumps below 1.1750 as USD benefits from risk-aversion
EUR/USD comes under renewed bearish pressure in the European session and trades below 1.1750 following a recovery attempt earlier in the day. The US Dollar gathers strength and weighs on the pair as investors seek refuge in the wake of Israel and the United States' joint attack on Iran.
Bitcoin, Ethereum and Ripple under pressure as key supports face breakdown risk
Bitcoin, Ethereum, and Ripple prices trade on the back foot at the start of this week on Monday, after extending losses in the previous week. BTC is on the brink of a breakdown, ETH is capped below key resistance, and XRP risks a crack of the trendline.
The market is paying for insurance, not apocalypse
As expected, this morning felt less like a Monday market open and more like a fire drill. Futures screens flickered red. S&P contracts down almost 1%. Nasdaq off 1.2%. Brent leaped 13% through $80. Gold rose 1.6% toward $5350 before paring some gains. The dollar is strutting mildly. The Swiss franc is quietly doing what it always does in a storm, catching some safe-haven flows.
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