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Keeping it Simple in XLT

Mon, Sep 1 2008, 06:19 GMT
by Online Trading Academy Team

Online Trading Academy

In the XLT Futures and XLT Forex classes, we educate through lessons, analysis, and trading. What I find interesting is that when people come into the program, they tend to be looking at so many things, processing so much information, and asking questions that suggest their mind is going in so many directions. This week was a good example of the mental cleansing that I try to facilitate in the XLT. Let's take a look at the chart of the S&P futures below, just as we did all week in the XLT.

Notice area "A". The shaded area represents the 1263 - 1264 demand range we focused on coming into this last week of trading. Why is area "A" so special? Let's go over it as we did at the beginning of the week. Here is a hint: Area "A" is special not because of what happened at area "A", it is special because of what didn't happen. This price action was important demand because PRICE COULD NOT GO TO OR PAST AREA "A". It actually did go to 1262.50 during that time but when it did, it quickly moved higher. This can only happen because at area "A", demand exceeded supply.
Therefore, when price revisited that level last week (area "B") on the 25th and 26th, we had a low risk / high reward and high probability trading opportunity on our hands. Some in the futures XLT bought at that level with targets of 1270 and higher, congrats. For this lesson, here are the two simple thoughts you want to focus on:

1) Focus on price levels where price can't go to or stay at.

2) Understand why this happens, think of order-flow and the buyers and sellers, not just red and green candles on a chart.

When price revisited the demand (support) level, I always have students ask themselves the same question. "Who is on the other side of your trade?" At "B", when we focus on the sellers, we know that we have some novice sellers entering the market. How do we know this? Only a novice seller would sell AFTER a decline in price and INTO a price level where demand exceeds supply. A consistently profitable market speculator would never do that. The laws of supply and demand ensure that the speculator that takes that novice action consistently will lose over time. We simply want to focus on the reality of what the price action is telling us and be the buyer to that novice seller. As always in any market, those who focus on the reality of what is happening get paid from those who don't.

Published on  Mon, Sep 1 2008, 06:24 GMT