The Many Ways to Benefit from Proper Supply and Demand Analysis

Often, I speak with people inquiring about Online Trading Academy. The perception is that we are a firm that teaches people how to trade. With our name being what it is, why would anyone think any different? While this is true, there are so many other ways to apply our education and information, outside of trading. I consider some of these reasons to actually be more important than trading. Whether I am trading, talking about trading, writing about trading, or instructing a trading session in the Extended Learning Track (XLT) program, I am applying the foundation concepts of supply and demand to identify low risk and high reward opportunity in markets. As I have said before, the movement of price in any and all free markets is simply a function of an ongoing supply and demand equation. Low risk, high reward, and high probability opportunity exists when this simple and straight-forward equation is out-of-balance. In today's piece, I want to expose you to other ways in which you can benefit from proper supply and demand analysis. When you have a rule-based strategy that allows you to fairly accurately predict where price is going next, a world of opportunity is at hand. Here are two of the many ways to take advantage of this.

Let's revisit a recent swing trading opportunity we identified and took advantage of in the XLT Futures. The chart below is a daily chart of Crude Oil. The first opportunity was to sell short at the supply level marked on the chart with a target of the demand level below, also marked on the chart. The risk / reward on this XLT short in Crude Oil was ideal and the trade produced over a 12 point gain. As mentioned, the demand level below was the target for the short trade, but the demand level in this case was also a buying opportunity for another swing trade, in the opposite direction, and some XLT members took advantage of this. As far as trading goes, there is not much else to say about these two XLT trades. Now, let's think a little deeper and explore any other ways in which we could have benefited from the opportunities our strategy offered us in Crude Oil.

1.If we focus on the demand level, as a trader, we are buyers. If you are a two parent working family whose funds are very tight and you both drive to work each day, the cost of gas to drive your cars can be a hefty expense. Knowing that price is likely to rise once it reaches the demand level, it would be wise of you to take both cars to the gas station and fill up your tanks. Why? Because the price of gas is about to go up from that demand level. If you have some extra gas cans in the garage and funds are really tight, you may want to fill them up, too, with cheap gas that is about to become more expensive.

2.If you are an airline, the biggest expense to your business is jet fuel. Airlines who not only hedge fuel costs but "properly" hedge fuel costs have a huge competitive advantage over the competition. A smart airline would benefit from buying crude oil Futures at the $68 a barrel XLT demand level as the price of fuel is about to increase. When they actually go to buy the fuel at a later date, after price is high, they will pay the higher price but that increase in price is offset by their gain in the Futures position in Crude. So, effectively, they would be flying at $68 a barrel while their competition is flying at $73 a barrel which is a tremendous difference to the bottom line.

3.Do you drive a truck for a living and wish to increase your profit margin? Buy as much fuel as you need for the near future when crude prices are at demand. In doing this, your fuel expenses will not increase as the price of fuel increases. Maybe you drive a taxi cab or limousine and so on. The point is, there are many other ways proper supply and demand analysis can have a direct, positive impact on your life, and the financial well-being of you and your family.

Another swing trading opportunity that came up for us recently was in the ten-year note, one of my favorite markets. The chart below is a daily chart and represented a low risk, high reward, and high probability shorting opportunity. In the XLT, we saw that price was rallying up to a clear supply level that was very well-placed on the larger time frame supply and demand curve. Another key piece of information we had in this opportunity was the presence of a novice gap up, just before price reached the supply level. This meant that a very novice buyer was buying a gap up in price, AFTER a strong rally in price, and into a supply level that was way up on the curve.
These factors suggested the odds of price turning lower from that supply level were very high. The trade has worked out well for XLT members who took advantage of this opportunity. As for the trade, I really don't have much else to say about it. Let's again think a little deeper and explore any other ways in which we could have benefited from the opportunities our supply and demand strategy offered us in the Ten Year Note Futures.

This market is one of the biggest and most important treasury markets in the world. This is the free market that determines key interest rates. In case you don't know, price and yield are inversely related in this market. In other words, when price goes up, the interest rate goes down. When price goes down, interest rates go up. The Fed and other large institutions can do and say what they want, but no one entity controls this market. What causes price to move is simple supply and demand.

1. Are you thinking of taking on a loan for a home? Interest rates are lowest and about to turn higher at supply levels on the price chart. Remember, price and yield are inverse here. When price hits supply and turns lower, interest rates go up.

2. Perhaps you are considering refinancing your home. Timing that refinance with a key supply level means the difference of money staying in your pocket or going into your loan company in the form of interest. Again, when price in this market reaches supply and falls, interest rates go up. This is not something that may or may not happen, this is the market for interest rates.

3. Maybe you are someone with an adjustable rate mortgage. If you are, you are constantly at risk of higher interest rates. By knowing how to quantify supply and demand, you can manage that risk stress-free yourself. Again, knowing that price is reaching a major supply level on a larger time frame, very high on the supply / demand curve, with a big profit margin on the downside, you may want to consider locking in a fixed rate before rates go up.

These are just some of the many ways in many markets proper supply and demand analysis can help you in other parts of your financial life, outside of just trading. Owning an edge in chart (supply/demand) analysis that allows you to predict market turning points with a high degree of accuracy is how the astute market player derives profit and financial well-being from the novice.

My hope is that this piece opened your mind to the many risks and opportunities you may be facing today and not even know it. If you have any questions on this or other topics, email any time.