Featured Article

Back to Basics of the Stock Market

Sam Seiden
Online Trading Academy, Chief Education, Products, and Services Officer

Rally base drop, drop base drop, resistance, Fibonacci, Elliot Wave, and on and on…all attempts to figure out where price will turn in the stock market. What makes Online Trading Academy different is that we don’t subscribe to anything related to conventional technical analysis. We don’t do this just to be different, we ignore conventional technical analysis theory simply because it’s very flawed at its core (more on this in another article).Free Workshop For today’s piece, I thought I would literally take a page right out of our Professional Trader course to help share the picture that represents real supply or demand in a market. We will also look at a recent trade example from one of our live trading rooms. For today’s lesson, let’s focus on the supply side. First, let’s go into the current Pro Trader Course and look at a course page that introduces “Supply” to our students so you can start to learn this as well.

Pro Trader Course

Seiden1 Notice the pattern, Rally – Base – Drop. This is the picture of supply that helps you be a willing seller high up on the supply and demand curve. While some may look at the Drop – Base – Drop as a supply level, keep in mind it is found in the middle of moves, unlike the Rally – Base – Drop that is found farther out at the extremes. With any picture of supply, you need to make sure it is very “fresh” meaning there are still significant unfilled sell orders in that area (price level). The entry once the picture above is produced is to short a rally back up to that supply level. The “drop” from the level tells us supply exceeds demand in that area. We sell short at the proximal line with a protective buy stop just above the distal line and that’s the sell setup. Again, keep in mind that a section that comes later in the course deals with the ever important “Odds Enhancers” which are the filter that helps us identify the best levels with the strongest supply and demand imbalances so make sure you understand those before trying this at home. I have also written about them in prior articles.

Live Trading Session (XLT) 

Seiden2 Every live trading room session begins with the screen that you see here. Prior to the market open, we go over the key supply and demand levels with our students. It is key that you have a good idea where institutions are buying and selling in the markets you’re trading. During this session, as you can see on the screen shot of the live session, the focus was on shorting the QQQ (NASDAQ) into a small time frame supply level for a short term income trade.

The Setup and Trade

Seiden3 The yellow shaded box represents supply in the QQQ, that was the level posted on the XLT prep screen for our students/traders. Notice the pattern prior to the yellow box, the yellow box itself, and after: Rally  – Base – Drop. This is the pattern right out of page 42 in the course book that we see live every day in the markets. Once price rallied back up to that level, the shorting opportunity is at hand if you wish to take the trade. These are typical of our early morning income trades.Free Workshop This is not about taking many trades in a session, it’s about taking the high probability ones that meet our criteria. There is nothing fancy about this, no indicators or oscillators or conventional chart patterns, there are not many different strategies, there is simply one. Buy where institutions are buying and sell where they are selling. Another way to say that is, buy where the smart money is buying and sell where the smart money is selling. The purpose of this article was to help you identify what the picture of that looks like on a chart. Of course, the Odds Enhancers help this process immensely and are key to identifying the key levels. Hope that was helpful, if you would like to learn more about supply and demand, take a free class near you. Written by: Sam Seiden

This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.