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 Sam brings over 15 years experience of equities and futures trading which began when he was on the floor of the Chicago Mercantile Exchange. He has traded equities, futures, interest rate markets, forex, options, and commodities for his personal interests for years and has educated hundreds of traders and investors through seminars and daily advisory services both domestically and internationally. Sam has been involved in the markets since 1991 both on and off the floor of the Chicago Mercantile Exchange. He has served as the Director of Technical Research for two trading firms and regularly contributes articles to industry publications. Sam is known for his trading, technical research, and educational guidance.
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A Lesson on Supply and Demand
Education
Last week on September 4th, the QQQQ rallied into our supply (resistance) level and declined $2.00 from that level. Why do I focus so much on turning points in markets as areas to enter trades? Why not just jump in the trend when it's well under way and/or buy breakouts? Simple… The trader who can pick turning points in markets based on the objective and simple rules of pure supply and demand typically derives his or her income from the trader who enters trends well after they are under way and from the breakout traders who buy after a period of buying and sell after a period of selling. Many people forget the simple fact of how you make money buying and selling anything. When you buy, many others must buy after you at higher prices for you to profit. When you sell short, many others must sell after you at lower prices for you to profit. Our entry below from last week was at the pre-determined turning point which did two things for us. First, it allowed us to obtain a short entry VERY close to our protective stop which keeps trading low risk. Second, it allowed us to sell short far from demand levels below which would be profit targets. In other words, our supply area allowed us to sell short when the profit margin was largest and about to decrease. Never forget… The longer you wait and let prices decline before selling short, the more risk is increasing and your reward (profit margin) is decreasing. Instead of desiring lots of confirmation of lower prices before selling short, the desire should be the benefits of a low risk entry at supply (resistance).
QQQQ Supply from Last Week
Trading Ideas
NASDAQ Futures
This is a monthly chart of the NASDAQ. To put things into perspective, it's always a good idea to look at supply and demand in the big picture. This chart shows us that this market is not that far from supply. It also shows us that price has not been able to move into this level at all as of yet, suggesting there is plenty of supply at that level. This area can take quite some time to get through and a turn lower is likely before a significant rise through the level. While we can certainly see NASDAQ prices rise, longer term low risk buying opportunities are lower in this market.
30 Year Bond Futures
Having just taught the Online Trading Academy Forex Class during the night session, producing a letter this week was a bit difficult. However, don't think for a second that quality trading ideas were hard to find. This chart of the 30 year bond futures is an active traders dream, having such a quality supply level above current price and just as quality a demand level below current price. Active traders can look to take low risk reversal entries at both these levels the FIRST time price revisits them. If you have never traded bonds or notes, these markets are loaded with volume, liquidity, and fantastic low risk/high reward trading opportunities.
Lastly, why do I only look at price and price alone when performing market analysis? First, any and all influences on price are reflected in price. Second, almost anything you add to price (a moving average for example), lags price. Anything that lags price in your decision making process increases RISK which is not ideal. I am not suggesting we should eliminate all indicators and oscillators. I am strongly suggesting however that there is a right and wrong way to use them. If you have any questions, please email me.
- Sam Seiden, sseiden@tradingacademy.com
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