24/7 market analysis… financial news TV shows, Youtube channels, Podcasts and so on focus on analyzing economic reports, corporate earnings and so much more. Most of the time, you have a panel of financial experts arguing whether a number is good or bad for markets. In this day and age, this type of analysis and reporting is endless.
Think about this… What is the goal of all that talk, debate and analysis? Often, you have two ivy league economists debating an economic report, and they both sound correct. My big question, again, is this… What is the goal of all that market analysis and debate? At the end of the day, isn’t all the talk to figure out where market price is going to turn and where price is going to go? If these are the two questions that the 24/7 talk is aimed at figuring out, why not just focus on that? Meaning, skip all the talk and analysis and go right to the only two questions that matter. Literally, don’t consider the news, the data, opinions or anything else. Skip all that and focus on the only information that matters. Here is how we do it…
I have been in the trading business for nearly 20 years as a trader, fund manager and educator. I began on the floor of the Chicago Mercantile Exchange on the institution side of the business. What was clear to me then, and will be forever, is that how prices move in any and all markets is a function of a simple supply and demand equation. Trading or investing opportunity exists when this simple and straight forward relationship is out of balance. How do we see this on a price chart?
Where will price turn in a market? Price in any market turns at price levels where demand and supply are out of balance. Meaning that, unfilled buy or sell orders cause price to turn.
Where will price go? Price moves easiest through price points where you don’t have a significant supply and demand imbalance. Meaning that, price points where orders are filled make it easy for price to move, keep going.
Notice the area labeled “unfilled sell orders” is the origin of a strong decline in price. This is exactly where the significant sellers (banks) are selling; we call this a Supply Zone. Next, notice how quickly price rallied up to supply where I sold short. Price then turned lower and reached the profit target.
Price turned because it reached a price level with significant “unfilled” sell orders. It then moved quickly lower because it was moving through an area where most of the orders were filled, a lack of unfilled buy orders. There are a few rule-based items we look for in the two pictures that represent filled and unfilled orders. For example, in the circled area, notice the large amount of trading that took place and the wide and whippy action. This is the picture of filled orders. If that was not the case and there was a large amount of unfilled orders, the picture would certainly look opposite of what it does, like the unfilled orders supply levels above.
Keep in mind that any and all influences on price are reflected in price. Whether you trade Stocks, Futures, Forex or Options, understand that behind all the candles on your screen in all these markets are people and their buy and sell decisions. The picture of filled and unfilled orders on a chart is crystal clear if you know what you’re looking for. The biggest issue is that everyone is doing market analysis and arguing over data and reports instead of focusing on the only two questions that matter. It’s a big step toward simplicity which most will never be comfortable with. So much truth in the world is cluttered with… well just that, clutter. If you care about your hard earned money, you may not want your money mind to be cluttered with anything that doesn’t directly put more money in your pocket.
To summarize – Unfilled orders cause price to turn. Filled orders facilitate price movement.