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:

  • Where will price turn? (Where are the unfilled buy and sell orders)

  • 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)

gold

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.

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

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