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.