One of the best ways to trade with low risk and higher probability is to anticipate when price will change in direction. To people that have some knowledge of the technical aspects of the market, telling them that it’s possible to pick a top or bottom in the market is almost heretical. This notion flies in the face of conventional technical analysis as something that’s never done, or even attempted, for the practitioners of this method.
Wall Street has also conditioned the investing public to never try and time the market. This is due to the fact that most brokers generate fees based upon their client’s money always being invested in the market. So, it makes sense that that they would promote this idea that market timing is futile, and therefore, should never be practiced.
Here at Online Trading Academy, we teach students to anticipate where prices will likely turn by using our core strategy of supply and demand. So, in essence, yes, we are teaching folks how to pick tops and bottoms, and we do that (buy lows and sell highs) quite regularly. Now, there are rules and specific sets of criteria that have to be in place for that to work, and we are obviously not going to be right all the time. However, the beauty of trying is that if we’re wrong, we only lose very little, and often times have a lot to gain.
Not all markets will fit the criteria that would allow us to attempt to time the turn. For example, our strategy would not allow us to short a strong stock like Apple. That’s because any stock or futures contract at an all-time high would preclude us from specifically delineating risk and reward. Whereas, if there were clear evidence of prior selling (a supply zone), we could be very specific in our risk-to-reward parameters. Now, once new selling emerges, thus forming fresh new supply levels, we could then aggressively begin to short a stock like Apple, or any other futures contract at or near an all-time high.
Two examples of timing the turning points came in an Extended Learning Track (XLT) – Futures class I conducted last week. The two captions below are of the Gold and Eurodollar Futures contracts, since we were discussing these during the XLT futures trading and analysis class. As I was conducting the session, a student asked where the gold market had a supply level he could short against. Another student asked a similar question regarding the Eurodollar futures. I directed the class to the levels you see on the main screen. Note that these levels were highlighted as supply areas (sell zones) well in advance of prices reaching these levels, as we expected prices to trade into this area and subsequently fall away. In other words, we were looking to pick the top in this market.
As we see from the lower two charts, both those trades worked out well for those XLT students that decided to take the risk, and the reward was properly suited for them.
These trades worked because many of the “odds enhancers” that we teach in the XLT happened to be in place on these particular trades. With that said, we can have every odd in our favor, and still have the level penetrated. So, there are no guarantees.
As the title suggests, the earlier you can anticipate a trend change, the lower the risk and the larger the profit potential in any trade. And isn’t that the essence of successful speculation? Now, once the trend is in place, can we join it? Sure, however, for most traders, this means higher risk and lower profit margins.
So, don’t let anyone tell you that timing the market is impossible; it is very possible. With the right strategy and the discipline to execute, it can be done.
Until next time, I hope everyone has a great week.
– Gabe Velazquez