Sam Seiden
Independent Analyst
Newton’s first law of motion states that every object in a state of motion tends to remain in that state of motion unless an external force is applied to it. For trading, the two “forces” are supply and demand which is in essence the same as buy orders and sell orders. While I often discuss the forces in articles, where those forces are “not” is just as important as where they are when it comes to proper trading and investing. At Online Trading Academy, where the forces are not is called “profit zone”.
It is important to find price levels where there is a major supply and demand imbalance as that is where prices turn. However, it is equally important to find price levels where there is very little demand or supply (force) as these are areas where price will move through with ease. Let’s look at a recent example from the Mastermind Community to illustrate this point.
MC Supply/Demand Grid: 6/27/17 – Natural Gas (NG)
Notice the chart above. The grid identified a price level where supply exceeded demand, where financial institutions were selling NG. This level scored out as a 9 according to our rule based Odds Enhancers and one of the most important reasons was the “profit zone” below the supply level. The setup was to sell short if and when price rallied back to that supply level as it did. In that case, someone would be buying after a rally in price and into a price level where supply exceeds demand. We are more than willing to sell to that novice buyer. The risk is low, reward high and the odds are stacked in our favor as the seller.
On the 27th, price rallied back to the supply (the force), allowing financial institutions and OTA students to sell short to buyers who thought NG was worth buying at that supply level. Price then turned lower and kept falling because there was NO FORCE (demand) to stop it, including the big gap which clearly shows no demand at all. The lack of force was evident prior to entering the trade and this information is a must, in my opinion.
Identifying the lack of force is just as important as identifying the force. The nice part is that once you completely understand this concept, there is nothing else to consider when predicting market turns and market moves. This is the key to short term trading for income and long term investing for retirement and a healthy retirement income stream.
Hope this was helpful, have a great day.
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Editors’ Picks
EUR/USD meets initial support around 1.1800
EUR/USD remains on the back foot, although it has managed to reverse the initial strong pullback toward the 1.1800 region and regain some balance, hovering around the 1.1850 zone as the NA session draws to a close on Tuesday. Moving forward, market participants will now shift their attention to the release of the FOMC Minutes and US hard data on Wednesday.
GBP/USD bounces off lows, retargets 1.3550
After bottoming out just below the 1.3500 yardstick, GBP/USD now gathers some fresh bids and advances to the 1.3530-1.3540 band in the latter part of Tuesday’s session. Cable’s recovery comes as the Greenback surrenders part of its advance, although it keeps the bullish bias well in place for the day.
USD/JPY is looking for direction around 153.00 with key US data in focus
USD/JPY reversal from 153.70 has been contained above 152.70 on Tuesday. Major currencies are trading within narrow ranges amid thin trading volumes. Investors await the release of the US GDP and PCE Inflation figures to make decisions.
Editors’ Picks
NZD/USD: All eyes on RBNZ guidance and new Governor Breman's debut
NZD/USD opened Tuesday at 0.60344, reached a high of 0.60520 and a low of 0.60044, and closed at 0.60480, down 0.22%. The pair is holding well above the 50-day Exponential Moving Average at 0.59041 and the 200-day EMA at 0.58545, with both averages rising and spaced roughly 50 pips apart, confirming the underlying bullish trend that began from the January low of 0.57110.
AUD/USD extends the bounce, focus back to 0.7100
AUD/USD adds to Monday’s optimism and approaches the key 0.7100 barrier ahead of the opening bell in Asia. The pair’s positive performance comes as investors keep assessing the hawkish tilt from the RBA Minutes and despite humble gains in the Greenback. Next in Oz will be the Westpac Leading Index and the Wage Price Index.
Gold remains offered below $5,000
Gold stays on the defensive on Tuesday, receding to the sub-$5,000 region per troy ounce on the back of the persistent move higher in the Greenback. The precious metal’s decline is also underpinned by the modest uptick in US Treasury yields across the spectrum.
RBNZ set to pause interest-rate easing cycle as new Governor Breman faces firm inflation
The Reserve Bank of New Zealand remains on track to maintain the Official Cash Rate at 2.25% after concluding its first monetary policy meeting of this year on Wednesday.
UK jobs market weakens, bolstering rate cut hopes
In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months.
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