As I have written about so many times, the movement of price in any and all free markets is simply a function of an ongoing supply and demand equation. Trading opportunity exists when this simple and straight forward equation is “out of balance.” Meaning, prices turn at price levels where supply and demand are most out of balance, in any market. The key for the market speculator is to have the ability to identify what this picture of opportunity looks like on a price chart. The lowest risk, highest reward and highest probability time to buy stocks, for example, is to buy at price levels way down on the supply/demand curve where demand exceeds supply. At these price levels, profit margins to the upside are huge and the risk is low. Unfortunately, price does not fall to these types of desired levels as much as we would like and when it does, it doesn’t stay there long. Of course, this is because demand exceeds supply in such a big way at those levels.
Another thing to consider is how and why prices in markets fall to these desired sale prices. The stronger the news event, the greater mass perception is created. The stronger the mass perception, the more buying and selling happens and this moves price. Last week, we had an NFP day in the USA. The news was much stronger than expected prompting people to buy stocks, price moved fast and far.
Supply/Demand Grid 11/06/15: S&P Futures Buying Opportunity, NFP Day
Many traders ask me the same question regarding news days like the NFP release last week. They ask if they should pull their orders from the market around news events and economic reports like last week and not trade. I have two answers… First, if you’re new to trading and don’t know how to identify real supply and demand in the markets, don’t trade around news events (don’t trade period). Second, if you are good at identifying real supply and demand in a market, you really want to be ready with orders in the market around news events. When it comes to price movement, the news typically speeds up what was going to happen anyway. As you can see on the S&P Futures chart above, after the NFP number price declined in somewhat strong fashion, right into our demand zone from that morning’s supply/demand grid. Next, price exploded away from that demand zone. Whatever the news is, however strong or weak it is, the movement of price is always a function of pure supply and demand, a simple numbers game.
Wall Street tells us that you can’t time the market’s turning points and that it’s a waste of time. Of course they tell us that. If the average person could time the market’s turning points, no one would need Wall Street. The truth is though, that the average person can time the market’s turning points with a very high degree of accuracy.
Hope this was helpful, have a great day.
Sam Seiden – firstname.lastname@example.org