Everyone wants to figure out where price will turn in a market and there are so many theories that claim to figure that out. Rally base drop, drop base drop, resistance, Fibonacci, Elliot Wave, Stochastics, Bollinger Bands, and so many more… all attempt to figure out where price will turn in a market. What makes Online Trading Academy different is that we don’t subscribe to anything related to conventional technical analysis. We don’t do this just to be different; we ignore conventional technical analysis theory simply because it’s very flawed at its core, which is why you don’t see people making money with it. For today’s piece, I thought I would literally take a page right out of our new Core Strategy Course to help share the picture that represents real supply or demand in a market. We will also look at a recent trade example from one of our live trading rooms, the Extended Learning Track (XLT).
For today’s lesson, let’s focus on the supply side as that is what we focused on in a recent XLT session. First, let’s go into the current Core Strategy Course and look at a course page that introduces “Supply” to our students so you can start to learn this as well.
Notice the pattern, Rally-Base-Drop. This is the picture of supply that helps you be a willing seller high up on the supply and demand curve. While some may look at the Drop-Base-Drop as a supply level, and that’s ok in the proper location, keep in mind it is found in the middle of moves, unlike the Rally-Base-Drop that is found farther out at the extremes. With any picture of supply, you need to make sure it is a “fresh” level, meaning there are still significant unfilled sell orders in that area (price level). The entry, once the picture above is produced, is to short a rally back up to that supply level. The “drop” from the level tells us supply exceeds demand in that area. We sell short at the proximal line with a protective buy stop just above the distal line and that’s the sell setup. Again, keep in mind that a section that comes later in the course deals with the ever important “Odds Enhancers” which are the filters that helps us identify the best levels with the strongest supply and demand imbalances so make sure you understand those before trying this at home.
By focusing on real supply and demand in market, we can identify where banks and financial institutions are buying and selling in a market, which is key. They leave clear footprints if you know what you’re looking for. I have also written about them in prior articles.
Live Trading Session (XLT) – Tuesday, May 9th, 2017
Every live trading room session begins with the screen that you see here. Prior to the market open, we go over the key supply and demand levels with our students. It is important that you have a good idea where financial institutions are buying and selling in the markets you’re trading. During this session, as you can see on the screen shot of the live session, the focus was on shorting the Natural Gas Futures (NG) into a small time frame supply level for a short term income trade.
The yellow shaded box represents supply in the NG; that was the level posted on the XLT prep screen for our students/traders. Notice the pattern prior to the yellow box, the yellow box itself, and after: Rally-Base-Drop. This is the pattern right out of the page in the course book that we see live every day in the markets. Once price rallied back up to that level, the shorting opportunity is at hand for those wishing to take the trade. These are typical of our early morning income trades.
This is not about taking many trades in a session, it’s about taking the high probability ones that meet our criteria. There is nothing fancy about this, no indicators or oscillators or conventional chart patterns. There are not many different strategies, there is simply one. Buy where institutions are buying and sell where they are selling. Another way to say that is, buy where the smart money is buying and sell where the smart money is selling. The purpose of this article was to help you identify what the picture of that looks like on a chart. Of course, the Odds Enhancers help this process immensely and are key to identifying the key levels.
Hope that was helpful, have a great day.