For any trader and investor, the most important function for you is proper analysis of supply and demand. This leads to the two most important questions:
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Where will price turn? (Where are the unfilled buy and sell orders)
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Where will price go to? (Where are the filled buy and sell orders)
Those who can answer this question by looking at a price chart can predict stock market turning points and market moves with a very high degree of accuracy and therefore profit from this. Those who can’t and still speculate in stock markets tend to provide profit for the first group.
The other day on our Supply and Demand grid, we used our rule based supply and demand analysis to identify a very low risk, high reward, and high probability trading opportunity in the stock market. I will explain for your review in hopes that you can understand how important the two questions above really are.
This opportunity was found in the Gold futures market using a smaller time frame. Notice the supply level on the grid and the chart. We know supply exceeds demand because price could not remain at the level and declined from the yellow shaded area. Price only declines from supply because there is more supply than demand at that level.
Notice the first time price revisits the supply level. Our rules tell us that novice traders are buying there. We know this because these buyers are buying AFTER a period of buying, mistake number 1, and they are buying at a price level where supply exceeds demand, mistake number 2. The objective laws of supply and demand ensure that the trader who commits these two mistakes will consistently lose. We simply sell short at the level with our protective buy stop just above the level. The lines/levels represent the “supply zone” or “sell zone”. As active traders, we determine these zones each day. As longer term investors, we do the same thing just in larger time frames.
Supply Demand Grid 8/21/17 – Gold (GC)
Let’s now discuss the key point that made this trading opportunity such high probability trade.
Notice the trading activity after the level was created but before price rallied back to the level for the first time. This price action tells us the buy orders down to the lowest price point prior to the first pullback are filled. Remember, filled orders facilitate price movement. This means that as soon as price reached supply, it was likely to fall very quickly back through that area because the buy orders were already filled. In other words, price reached our supply level and we are able to sell short at supply for a move down through the very clear “profit zone”. Again, unfilled orders (supply and demand) cause price to turn. Filled orders (lack of supply and demand) facilitate price movement. If you learn to spot the first one, you will see the second one also. Online Trading Academy can help you learn to trade the stock market so you can use this skill set to help achieve your financial goals and live the life you choose.
Hope this was helpful, have a great day.
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Editors’ Picks
EUR/USD steady below 1.0800 after US PCE meets expectations
EUR/USD remains depressed below 1.0800 after soft French inflation data, amid minimal volatility and thin liquidity on Good Friday. The pair barely reacted to US PCE inflation data, with the Greenback shedding some pips. Fed Chair Jerome Powell set to speak ahead of the weekly close.
GBP/USD hovers around 1.2620 in dull trading
GBP/USD trades sideways above 1.2600 amid a widespread holiday restraining action across financial markets. Investors took a long weekend ahead of critical United States employment data next week. Fed Chair Powell coming up next.
Gold price sits at all-time highs above $2,230
Gold price holds near a fresh all-time high at $2,236 in thinned trading amid the Easter Holiday. Most major world markets remain closed, although the United States published core PCE inflation, the Federal Reserve’s favorite inflation gauge.
Jito price could hit $6 as JTO coils up inside this bullish pattern
Jito (JTO) price has been on an uptrend since forming a local bottom in early January. Since then, JTO has revisited the key swing point formed in early December, suggesting the bulls’ intention to move higher.
Key events in developed markets next week
Next week, the main focus will be inflation and the labour market in the Eurozone. We expect services inflation to be impacted by the easter effect, while the unemployment rate to be unchanged.
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