The chart below is an income trade in the S&P that I took on 5/31/17. The S&P declined into one of my strong demand zones and then proceeded to rally for a couple days. As you can see on the chart below, I followed the simple rules I have been sharing and bought near the low, into a clear demand zone where banks were buying also. Then, I took a profit of $1,200 when price reached my target (blue circle). What surprised me was seeing many traders sell short in that red circle area, when price broke below those prior pivot lows. Watching the markets, I saw this happening and know why it happens so I wanted to talk about it here to help others not make this novice mistake.
People who shorted the S&P just below that 2408 level (red line) did so because conventional technical analysis rules tell them to short there. Bearish engulfing candles and a break of pivot lows is a clear sell signal for traders to follow the rules of technical analysis. The reason you don’t see people making a consistent low risk living from the markets with this school of thought is because there is a major flaw in it. The flaw is that all the chart patterns, indicators, oscillators and so on never take one thing into consideration – where are the buy orders (demand) and sell orders (supply). Yes, believe it or not, conventional technical analysis which is what dominates the trading/investing books and the internet IGNORES the only thing that matters when making a proper buy and sell decision, demand and supply! In the S&P here, this group was selling just above a price point where banks, and I, were buying, which is a very novice mistake.
S&P Income Trade 5/31/17 – Profit: $1,200.00
It’s simply a matter of how you “think the markets” that separates those who make a living in the markets from those who don’t. To be successful at trading and investing, you must focus on what is real, not what you feel. What’s real is that price movement in any and all markets is a simple function of an ongoing supply and demand relationship. Prices turn at levels where this simple and straight forward equation is out of balance, like my demand zone and entry into the S&P trade. There are only two groups at play in the markets, those who achieve consistent profits and those who provide those profits. So, before you put your hard – earned money at risk in the markets, make sure your trading and investing strategy is reality based and focused on how you make money buying and selling anything in life. This is the key financial mindset that allows you to produce the income and wealth needed to start living the life you choose to live.