In the courses at Online Trading Academy, we teach our students where the proper areas to buy and sell lie on the charts. You may know those areas as supply and demand levels If you are a student or a regular follower of our articles. However, there seems to be some confusion among traders as to how to identify the best levels for entering or exiting trades.

For the highest probability trading opportunities, we want to buy at strong demand levels where there are a lot of buyers but supply is very thin and prices are likely to rise.  We want to sell at supply levels where the supply of stock overwhelms the feeble demand that may be there.  Prices will halt and reverse when buyers diminish and the current trend no longer has the pressure to sustain itself and the opposite pressure exerts itself.

To determine the best entry point, we must focus on how strong the opposing pressure is at those levels.  For example, we buy at demand levels because they were turning points in the past.  They are levels where prices could not continue to drop and started to rise.  This occurs as the supply is becoming exhausted as sellers dump shares onto the market.  Eventually prices become so cheap that willing buyers jump in and support the price.  When the demand from these buyers exceeds the existing supply from sellers, prices will rise.  We focus on that area as an area of demand where we will buy again in the future.

Chart

When we enter into a long trade, we want to buy at the strongest level of demand in order to have a high probability for success.  Most traders think incorrectly that all turning points where prices rose will act as demand.  We need to be selective in our trading.  We want to find the strongest levels of demand for the best trading opportunities.  Those strong levels identify themselves in the way that price leaves the level.

Think of a glass filled with water.  If you grab hold of the glass and it is filled with lukewarm water, you will be able to hold the glass for as long as you’d like.  However, if you grab a glass filled with scalding hot water, you are likely to let go of it very quickly. Demand levels work the same way.  If prices enter that area and then move sideways or slowly leave the area, there is not strong buying pressure there and it is a weaker demand level.  However, if prices barely enter demand and move quickly away, there is strong buying pressure there and you want to use those areas as buying points in the future.

Chart

Supply levels work the same way with selling pressure dominating buyers.  If you want more information on how to identify and trade these levels, visit your local Online Trading Academy Center and enroll in one of the professional trading classes today.  Until next time, trade safe and trade well.

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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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