When using supply and demand to identify turning points in a market, a question that comes up often is, “How far back should I look for a supply and demand level”? The proper answer is this: Look back as far as you need to in order to find fresh demand and supply. The key word is fresh as those represent the highest probability turning points. At those points, you have the highest amount of unfilled buy and sell orders which is ultimately why prices turn.

The OTA Supply and Demand grid has picked consistent turning points since its inception back in March 2012. The reason for the consistency is that we are focused on where banks and financial institutions are buying and selling, their demand and supply, nothing else. In other words, the levels that you see on the grid below are fresh demand and supply. Having this information as an income trader or longer-term investor is key.

Supply Demand Grid 12/01/17 – USDJPY

USDJPY

Notice the supply level above. Price declined from that area in strong fashion along with a few of our “odds enhancers” suggesting banks were big sellers of the USDJPY at that level. Half a month later, price rallied back to that level and fell, offering OTA grid members a low risk, high reward and high probability shorting opportunity.

The question many students had was, how that level was found given that the last time price had been there was two weeks ago? While a full explanation is beyond the scope of this piece, we can explore some points of interest in hopes that the information will help take your trading to the next level. Sometimes we look back months and years to find fresh levels, when price is far out on the supply / demand curve. When we looked back, we looked for the picture on the chart that represented fresh demand, and there it was. It also had all our “Odds Enhancers” associated with it which made it a key level, as mentioned above. I am not suggesting that all the same sellers who were trying to sell at that level 2 weeks earlier were still sitting there with sell orders, though many likely are.  What the chart does tell us however, is the aggregate supply and demand equation at each price point in a market. If supply didn’t exceed demand at that level, price would not have turned and gone down.

2 Key Points:

  • The key to knowing where market prices are going to turn in advance, and also where prices are going to go, with a very high degree of accuracy means knowing exactly what institution/bank demand and supply looks like on a price chart in any market and at any time frame.

  • Understand that supply and demand levels created long ago can serve to be very strong levels. The fact that they were created long ago is not a bad thing, it’s actually a positive for three reasons. One of which is this… When a level has not been reached in a very long time, it, by definition, is very far out on the supply / demand curve meaning it’s a very high probability opportunity that will almost always have a huge profit zone with it.

Learn to Trade Now

This content is intended to provide educational information only. This information should not be construed as individual or customized legal, tax, financial or investment services. As each individual's situation is unique, a qualified professional should be consulted before making legal, tax, financial and investment decisions. The educational information provided in this article does not comprise any course or a part of any course that may be used as an educational credit for any certification purpose and will not prepare any User to be accredited for any licenses in any industry and will not prepare any User to get a job. Reproduced by permission from OTAcademy.com click here for Terms of Use: https://www.otacademy.com/about/terms

Education feed

Editors’ Picks

EUR/USD shakes above 1.18 after upbeat US retail sales

EUR/USD is trading above 1.18 after US retail sales missed with 1.2% in July but on top of upward revisions and alongside robust core increases. Consumer sentiment for August is awaited.

EUR/USD News

GBP/USD trades above 1.3050 ahead of more reopening steps

GBP/USD is trading above 1.3050, off the lows. The UK is set to ease some restrictions over the weekend, extending its gradual exit from lockdown. The US dollar is taking a break after gaining and ahead of retail sales. 

GBP/USD News

USD/JPY: A battle of control is underway as 107 hardens-up

USD/JPY bull sin control while holding above 4-HR support. Resistance in the 107 area is capping bullish attempts and failures could trigger a battle for control. A break of support at this juncture would lure in the bears to test a 61.8% Fib and prior key support structure.

USD/JPY News

Editors’ Picks

EUR/USD shakes above 1.18 after upbeat US retail sales

EUR/USD is trading above 1.18 after US retail sales missed with 1.2% in July but on top of upward revisions and alongside robust core increases. Consumer sentiment for August is awaited.

EUR/USD News

GBP/USD trades above 1.3050 ahead of more reopening steps

GBP/USD is trading above 1.3050, off the lows. The UK is set to ease some restrictions over the weekend, extending its gradual exit from lockdown. The US dollar is taking a break after gaining and ahead of retail sales. 

GBP/USD News

USD/JPY: A battle of control is underway as 107 hardens-up

USD/JPY bull sin control while holding above 4-HR support. Resistance in the 107 area is capping bullish attempts and failures could trigger a battle for control. A break of support at this juncture would lure in the bears to test a 61.8% Fib and prior key support structure.

USD/JPY News

BTC/USD is on the verge of a massive breakout towards $10,000 or $8,000

Bitcoin has already lost a significant portion of its dominance against other altcoins. After trading sideways for such a long time, many coins are taking advantage of the situation to create massive rallies. 

Read more

Gold trades with modest losses, below $1950 level

Gold traded with a mild negative bias through the early European session and was last seen hovering near the lower end of its daily range, around the $1945 region.

Gold News

RECOMMENDED LESSONS

7 Ways to Avoid Forex Scams

The forex industry is recently seeing more and more scams. Here are 7 ways to avoid losing your money in such scams: Forex scams are becoming frequent. Michael Greenberg reports on luxurious expenses, including a submarine bought from the money taken from forex traders. Here’s another report of a forex fraud. So, how can we avoid falling in such forex scams?

What Are the 10 Fatal Mistakes Traders Make

Trading is exciting. Trading is hard. Trading is extremely hard. Some say that it takes more than 10,000 hours to master. Others believe that trading is the way to quick riches. They might be both wrong. What is important to know that no matter how experienced you are, mistakes will be part of the trading process.

Strategy

Money Management

Psychology