Sam,

I am an Online Trading Academy stock trading graduate and soon to be futures class attendee (with XLT hopefully to follow if I like futures). Thank you for this week's "Systems Trading - A Complex World with Simple Answers" article; it was very enjoyable, well developed and perfectly explained. The only thing that I would ask is how you use these trade rules for "sideways" markets like we have now? I trade the "SPY" and I am having some difficulties with lack of movement. I often opt out of trades or get stopped out with small but annoying losses. How would you add another box in the summary boxes you created for this situation?

Thank you in advance for your response.

Dan J.

Thanks for the email. If you want to use the indicator for trend and oscillator for entries, add a setup that calls for the moving average to be relatively "flat." In other words, from the article, you need to have a specific slope of the moving average to know you're in a trend. That slope is defined by a number. So, any number less than what you require for uptrend, and greater than what you require for downtrend, means that the moving average is not sloping up or down, sideways trend. When this is true, you can take both oscillator buy and sell signals as entry points. Once the moving average begins to slope up or down again, go into trend trading mode as discussed in the article. Hope this helps.

Sam,

First I want to thank you for your willing to share your knowledge and wisdom to help the want-to-be traders all over the world. Personally, I took some courses and read about 20 books, but always had the feeling that something was missing and that some theories seem faulty. I read your articles and watched your webinar at FxStreet, and can tell you gladly, that it was enlightening. It helped me a lot in arranging my thoughts and rewrite my trading plan to one that I can feel comfortable with and that seems logical to me.

I have a question regarding gap up as a demand. When a gap up occurs in the middle of the move, will you consider the origin of the up as a valid demand, or ignore it and wait for the price to reach the pivot low?

Thank you very much,

Ben

Thanks for the email. Be careful with those gaps in the middle of moves. I have two answers for you. First, go back and read a prior article I wrote on "Gaps, Pro versus Novice". This will help you focus on the highest probability opportunities around gaps. Second, when you see a gap up in price from an area, your next step should be to identify the nearest demand (drop base rally) level to the origin of that gap. Much of the time it will be found at the origin of the gap, but not always. Sometimes, it is just below the origin of the gap and that is where we find the low risk, high reward, and high probability entry at. The opposite is true for the gap down and where the real supply is.

Hi Sam,

I've wanted to ask you about this monthly Nasdaq supply that you have been telling us about. You rightly pointed out that it would stop prices going higher and it certainly has which surprised me as the novice because the S&P seems to have further to go before it hits supply yet it has turned, too.

But my question is more to do with the longer term like my IRA... I heard you say that prices would have to go a lot lower before the supply/demand imbalance would be cleared out – which to me sounds like it would have to fall to at least 50% of the move up from the March lows last year, like the Qs dropping back to $35-ish. Well so far the market has pulled back and then started to rally a bit. I guess my question is, do you think it's headed back to the January highs again or is it more likely to fall way lower from where we are now before it goes back to the January highs?

This is important to me because I have some HPQ Employee stock options that I have to sell before 5/31 so I would like the market to go back to the highs or even higher so I can get the best price, but then again if it's going a lot lower, I should act now at the price that HPQ is at now.

I know you can't give advice and I'm not looking for that, just help in interpreting the monthly supply level.

Thanks so much Sam.

Keith

Thanks for the email, Keith. The S&P does have room to fall but when you look at the larger time frames, daily and weekly charts, there are demand levels not that far away. From your question, you are focused on where the demand below is as that may dictate your IRA actions. What you may not be considering is the other side of that equation which is just as important. It's the NASDAQ and S&P supply above. Just because price declines to one of the key demand levels below does not mean it's going to move past that big supply above. There are two things to consider equally: 1) Identify the demand level below current market prices that has a significant upside profit margin (distance from demand to supply). 2) Wait for some, if not all, of the supply above that we have been talking about to be absorbed, traded through before investing capital for a big move to the upside. I know you're in the Extended Learning Track (XLT). Lets discuss this further during a session.

Hi Sam,

Another good article!

I think about the traders of yesteryear, Gann, Elliott, Dow etc and realize they traded without computers or indicators, but they developed a feel for the tape, i.e. supply and demand. They did develop some simple indicators but my understanding is they didn't rely on them in the same way we have been conned into by the "trainers" of today. If people did a short spell of hand charting maybe some would become better traders as they would see patterns as they were developing. Computers are great tools but we have allowed them almost to become our masters by our over reliance on indicators.

Regards,

John P.

Thanks for the email, John. I could not agree more. In fact, at one time, I did use graph paper and colored pencils and let me tell you... You become very aware of price levels where demand exceeds supply and vice versa. People's reliance on computer-generated decisions in the trading world have just helped the old school traders get wealthier. When watching the "tape" and price rises significantly from a price level, why did it rise? Simple, demand exceeds supply at that price and that is where the low risk, high reward buying opportunity is. Today's fancy computer models never tell people to buy at that level. Instead, people wait for computer-generated lagging buy signals to get them into a high risk, low reward trade and ultimately, pay the tape reader who bought at demand. Sounds like you have figured out the big secret to success. Don't worry about telling others; most will go with the high risk entry - people are people.

As always, it is a pleasure writing for you. Thanks for your questions and comments. Have a great day.