As I have written about so many times, the movement of price in any and all free markets is simply a function of an ongoing supply and demand equation. Trading opportunity exists when this simple and straight forward equation is “out of balance.” Meaning prices turn at price levels where supply and demand are most out of balance, in any market. The key for the market speculator is to have the ability to identify what this picture of opportunity looks like on a price chart. The lowest risk, highest reward, and highest probability time to buy into a market, for example, is to buy at price levels way down on the supply/demand curve where demand exceeds supply. At these price levels profit margins to the upside are huge and the risk is low. Unfortunately, price does not fall to these types of desired levels as much as we would like and when it does, it doesn’t stay their long. Of course, this is because demand exceeds supply in such a big way.
Another thing to consider is how and why prices in markets fall to these desired sale prices. The stronger the news event, the greater mass perception is created. The stronger the mass perception, the more buying and selling happens and this moves price. Last week we had a Fed day. While the news was not all that unexpected, price moved fast and far.
Supply/Demand Grid 03/18/15: NASDAQ Buying Opportunity, Fed Day
Many traders ask me the same question regarding news days like the Fed day. They ask if they should pull their orders from the market around news events like the Fed news day last week and not trade. I have two answers… first, if you’re new to trading and don’t know how to identify real supply and demand in the markets, don’t trade around news events (don’t trade period). Second, if you are good at identifying real supply and demand in a market, you really want to be ready with orders in the market around news events. When it comes to price movement the news typically speeds up what was going to happen anyway. As you can see on the NASDAQ Futures chart above, just prior to the Fed announcement, price declined in somewhat strong fashion right into our demand zone from that mornings supply/demand grid. Next, price exploded away from that demand zone. Whatever the news is, however strong it is, the movement of price is always a function of pure supply and demand, a simple numbers game.
Wall Street tells us that you can’t time the market’s turning points and that it’s a waste of time. Of course they tell us that. If the average person could time the market’s turning points no one would need Wall Street. I would argue that the average person can time the market’s turning points like we did with the NASDAQ. It’s not that we are always right and can pick every turning point in a market. With our rules however, I would argue that the average person can time the market’s turning points with a very high degree of accuracy.
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Editors’ Picks
EUR/USD holds gains above 1.0700, as key US data loom
EUR/USD holds gains above 1.0700 in the European session on Thursday. Renewed US Dollar weakness offsets the risk-off market environment, supporting the pair ahead of the key US GDP and PCE inflation data.
GBP/USD extends recovery above 1.2500, awaits US GDP data
GBP/USD is catching a fresh bid wave, rising above 1.2500 in European trading on Thursday. The US Dollar resumes its corrective downside, as traders resort to repositioning ahead of the high-impact US advance GDP data for the first quarter.
Gold price edges higher amid weaker USD and softer risk tone, focus remains on US GDP
Gold price (XAU/USD) attracts some dip-buying in the vicinity of the $2,300 mark on Thursday and for now, seems to have snapped a three-day losing streak, though the upside potential seems limited.
XRP extends its decline, crypto experts comment on Ripple stablecoin and benefits for XRP Ledger
Ripple extends decline to $0.52 on Thursday, wipes out weekly gains. Crypto expert asks Ripple CTO how the stablecoin will benefit the XRP Ledger and native token XRP.
US Q1 GDP Preview: Economic growth set to remain firm in, albeit easing from Q4
The United States Gross Domestic Product (GDP) is seen expanding at an annualized rate of 2.5% in Q1. The current resilience of the US economy bolsters the case for a soft landing.
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