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Do Markets Ever Change?

Sam Seiden
Online Trading Academy, Chief Trading Strategist

During my days on the trading floor of the Chicago Mercantile Exchange, my job was to facilitate institution order flow. Each day, I would take orders from banks, institutions, money managers and so on and facilitate the execution of those orders into the various markets. Having the real buy and sell orders from the institutions in front of me, you could clearly see where the strongest supply and demand was in the markets. If I wanted to know where the S&P was going to stop falling and turn higher, all I had to do is look in front of me and see where the largest amount of buy orders were below current price, the markets real demand, and vice versa for supply. Each day, price just moved from where the significant buy orders were (demand), to the price level where significant sell orders were (supply).

Today, we don’t have much in the way of paper orders anymore like I dealt with on the trading floor. Just about everything has gone electronic. However, from my view of how people understand and trade the markets today, it is so clear what has happened over the years. What is such a simple and obvious equation has turned into complex math driven strategies, endless combinations of indicators, PhD level economics, and much more due to the technology boom of the past two decades. While technology has advanced so much and change happens almost daily, how we make money buying and selling in markets has not changed one bit. What caused price to turn and move many years ago is exactly what causes price to turn and move today. It is still, 100%, the simple supply and demand equation as it always has been and always will be.

Supply and Demand Trade

Learn how to read a price chart

Therefore, it is our job to use price charts to figure out where those orders are, the demand and supply. At Online Trading Academy, we look for the picture that represents those orders as that is where prices turn. Notice the demand zone above. Price could not stay at that level long and rallied from it in strong fashion. This tells us objectively that demand exceeds supply at that level. Next, price rallied all the way up to the high just above the blue line before falling back to demand for our buying opportunity. This tells us objectively that significant supply does not exist until that blue line or higher but certainly not lower. By understanding and seeing where supply and demand is and is not on a chart, we can determine where price is going to turn and where it will go. This trade worked out for a profit of just over $1000.00.

Free Trading WorkshopThese days again, most people complicate such a simple dynamic that never changes, markets and how you make money buying and selling in them. The hardest part is realizing that how and why prices turn and move in markets has never changed, no matter how far technology advances. Faster and better number crunching will never be more important than knowing where banks are buying and selling for example. Keeping things simple is the single greatest challenge for the average person when it comes to almost anything in life from my experience.

Hope this was helpful, have a great day.

Sam Seiden – sseiden@tradingacademy.com

Disclaimer
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.