I have been involved in financial markets for more than 20 years now. I’ve heard so many times that market timing is impossible. Wall Street financial firms telling the mass investing public to not worry about it and just put as much money into the market as soon as you can and leave it alone. The key ingredient they always leave out is to buy (and sell) at the right price. This is interesting because what do you think every successful Wall Street firm and profitable market speculator focuses on first and foremost? The PRICE at which they enter the market and the PRICE at which they exit the market.
Predicting market prices (market timing) with a very high degree of accuracy is very possible if you know what you’re doing. While I know I write about this topic often, I want to try another way of explaining it in hopes that you will end this article with a stronger market timing skillset than when you started. Let’s look at the trade below. This trade was taken by one of our trading instructors in our live trading and analysis room, the Extended Learning Track (XLT). XLT instructors focus on applying our core strategy, identifying where banks are buying and selling in any and all markets we trade. This trade was in the US Dollar and it was a shorting opportunity.
OTA Live Trading Room: 3/10/17 – US Dollar
The Yellow box above is the supply level. The rally into supply is where our instructor and XLT members who use the grid had the opportunity to sell short. Price proceeded to rapidly decline for a profit but the focus of this piece is, how did we know that was going to happen? Let me explain…
To figure out where price will turn and where it will go, let’s focus on what the candles in the yellow shaded area represent and the same with the candles in the grey area.
Yellow: Price was trading sideways for a short period of time and then fell. This can only happen because supply exceeded demand at that level. Meaning, when price fell, there were still “unfilled” sell orders in that area. Therefore, when price rallies back up to that area where banks are selling, we expect price to turn and decline. How much price will decline depends on the grey area of the chart.
Grey: Notice two things… First, all the trading activity in that area. As mentioned above, what turns price is a significant supply/demand imbalance. At a price level/range where you have plenty of trading activity, there can’t be a significant supply/demand imbalance. If there was, price would not remain in that area and you would not see so much trading. Also, notice the pivot lows in that area. Ask yourself, are they the picture of unfilled orders or orders being filled? Each time price declines and you have those pivot lows, more and more of the demand (buy orders) area filled meaning less demand. So, the grey area clearly tells the astute trader or investor that any significant buy orders are filled and that price should decline quickly through that area, as it did.
The key is learning to see the difference between price levels with unfilled and filled orders on a chart. This, and only this, is why price changes direction and moves in any and all markets. I learned this on a trading floor many years ago facilitating order flow from banks and financial institutions. All the information you need to see is on a price chart and right in front of you, if you know what you’re looking for.
Hope this was helpful, have a great day.
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results.