Each day, my team and I produce supply and demand levels for some of the major global markets as you can see below. These levels are meant for both short and long term trading, and are found in the Mastermind Community at OTA. The screen shots below are the supply and demand level grids from Monday Sep. 17 – Thursday Sep. 20. For this week’s article, I want to focus on a demand level in the NASDAQ that I focused on for much of last week for our traders as it represents a couple of key Odds Enhancers that were responsible for this week’s trading success in that market.
The demand level was in the NASDAQ Futures, it was 2832 – 2838 (yellow shaded area on chart). The specific level itself is best seen on a 5 minute chart of the NASDAQ. As you can see throughout the week, the NASDAQ dipped into this level three times, rallying strong off that level a couple times. Our demand level ended producing the low of that week. What may seem odd to you is that I kept the demand level on the grid for four days in a row even after price touched it once or twice. The reason for this has to do with a key Odds Enhancer we use that helps us assess how much demand (or supply) is actually at a price level.
2 Key Odds Enhancers:
1) The level itself was found on the 5 minute chart in the yellow shaded area. It was a very small level with very little trading activity in it. This description may equate to a weak demand level to you, but actually the opposite is true. The less time price spends at a level, the more out of balance supply and demand is at the level.
2) The number of retracements to a level is a key factor in whether we want to take the level as an opportunity to buy or sell at the level. As I explained and showed above, I kept this demand level on the supply/demand grid four days in a row, even after price touched the level on the second day. My standard policy is to only take the first retracement back to a level as that entry is the highest probability time to enter but we can and do take our analysis to a deeper level of objectivity. If price just touches the level on the first retracement, I will gladly take entry at the level again and again and again like this example. However, when price penetrates 25% or more into the level, that is when I will stop entering at the level because that tells me much of the supply or demand is used up (absorbed, filled). Remember, each level represents an amount of willing demand or supply. With each successive retracement to the level, the amount of willing demand or supply is decreasing.
Knowing how to identify key supply and demand levels like this starts with knowing what you are looking for which means taking your trading brain to the deepest levels of simplicity. What made the NASDAQ turn higher and rally strong for us at our demand level all week was the fact that institutions had large “unfilled” buy orders at that level. Price charts whether they are a candlestick chart, bar chart, line chart, point and figure chart, and so on only show us “filled” orders, that’s what the chart is. I don’t care about “filled” orders which is what charts show us, that does nothing for me. I only care about finding large amounts of “unfilled” orders and exactly what price levels those are at (the OTA supply/demand Grid). Unfilled orders cause prices to turn and move in markets, not filled orders. So, we have to use regular charts which only show us filled orders to identify where key levels of unfilled orders are. Now you know what you should be looking for. The one picture/pattern that represents that is what makes up our levels each day on the supply / demand grid.
Hope this was helpful, have a great day.