Brandon Wendell, CMT
Brandon Wendell
Online Trading Academy teaches our students where the proper areas to buy and sell lie on the charts. Those areas, as you may know, are supply and demand levels. However, there seems to be some confusion among traders as to how to identify the best levels for entering or exiting trades.
Remember, we want to buy at strong demand levels where the supply is very thin and prices are likely to rise. We want to sell at supply levels where the supply of stock overwhelms the feeble demand that may be there. Prices will halt and reverse when the current trend no longer has the pressure to sustain itself and the opposite pressure exerts itself.
We must focus on how strong the opposing pressure is at those levels. For example, we buy at demand levels because they were turning points in the past. They are levels where prices could not continue to drop and started to rise. This occurs as the supply is becoming exhausted as sellers dump shares onto the market. Eventually prices become so cheap that willing buyers jump in and support the price. When the demand from these buyers exceeds the existing supply from sellers, prices will rise. We focus on that area as an area of demand where we will buy again in the future.
When we enter into a long trade, we want to buy at the strongest level of demand in order to have a high probability for success. Most traders think incorrectly that all turning points where prices rose will act as demand. We need to be selective in our trading. We want to find the strongest levels of demand for the best trading opportunities. Those strong levels identify themselves in the way that price leaves the level.
Think of a glass filled with water. If you grab hold of the glass and it is filled with lukewarm water, you will be able to hold the glass for as long as you’d like. However, if you grab a glass filled with scalding hot water, you are likely to let go of it very quickly. Demand levels work the same way. If prices enter that area and then move sideways or slowly leave the area, there is not strong buying pressure there and it is a weaker demand level. However, if prices barely enter demand and move quickly away, there is strong buying pressure there and you want to use those areas as buying points in the future.
Supply levels work the same way with selling pressure dominating buyers. If you want more information on how to identify and trade these levels, visit your local Online Trading Academy center and enroll in one of the professional trading classes today. Until next time, trade safe and trade well.
Neither Freedom Management Partners nor any of its personnel are registered broker-dealers or investment advisers. I will mention that I consider certain securities or positions to be good candidates for the types of strategies we are discussing or illustrating. Because I consider the securities or positions appropriate to the discussion or for illustration purposes does not mean that I am telling you to trade the strategies or securities. Keep in mind that we are not providing you with recommendations or personalized advice about your trading activities. The information we are providing is not tailored to any individual. Any mention of a particular security is not a recommendation to buy, sell, or hold that or any other security or a suggestion that it is suitable for any specific person. Keep in mind that all trading involves a risk of loss, and this will always be the situation, regardless of whether we are discussing strategies that are intended to limit risk. Also, Freedom Management Partners’ personnel are not subject to trading restrictions. I and others at Freedom Management Partners could have a position in a security or initiate a position in a security at any time.
Editors’ Picks
EUR/USD tests 1.1800 barrier above 50-day EMA
EUR/USD gains ground after three days of losses, trading around 1.1790 during the Asian hours on Thursday. The 14-day Relative Strength Index momentum indicator at 47 (neutral) reflects easing momentum. The RSI below 50 keeps momentum balanced and could limit follow-through.
GBP/USD struggles near four-week low vs. USD, below 1.3500 amid BoE rate cut bets
The GBP/USD pair is seen consolidating its weekly losses registered over the past three days and oscillating in a narrow range near a four-week trough, touched during the Asians session on Thursday. Spot prices currently trade just below the 1.3500 psychological mark and seem vulnerable to slide further.
USD/JPY: Bulls retain control around 155.00 amiid USD strength
USD/JPY consolidates the previous day's strong gains to around 155.00 early Thursday, with the bias remaining in favor of bulls as worries about Japan's fiscal health and the upbeat market mood continue to undermine the safe-haven Japanese Yen. Meanwhile, the FOMC Minutes showed that Fed officials remain split over the necessity and timing of further rate cuts amid concerns about inflation, which acts as a tailwind for the US Dollar and should support the currency pair.
Editors’ Picks
EUR/USD tests 1.1800 barrier above 50-day EMA
EUR/USD gains ground after three days of losses, trading around 1.1790 during the Asian hours on Thursday. The 14-day Relative Strength Index momentum indicator at 47 (neutral) reflects easing momentum. The RSI below 50 keeps momentum balanced and could limit follow-through.
GBP/USD struggles near four-week low vs. USD, below 1.3500 amid BoE rate cut bets
The GBP/USD pair is seen consolidating its weekly losses registered over the past three days and oscillating in a narrow range near a four-week trough, touched during the Asians session on Thursday. Spot prices currently trade just below the 1.3500 psychological mark and seem vulnerable to slide further.
Gold consolidates below $5,000 amid geopolitical risk, hawkish FOMC Minutes
Gold extends its sideways consolidative price move through the Asian session on Thursday and remains below the $5,000 psychological mark as traders seem hesitant amid mixed cues. The US Dollar preserves its strong gains to over a one-week high in the wake of somewhat hawkish Minutes of the US Federal Reserve’s January monetary policy meeting.
Injective token surges over 13% following the approval of the mainnet upgrade proposal
Injective price rallies over 13% on Thursday after the network confirmed the approval of its IIP-619 proposal. The green light for the mainnet upgrade has boosted traders’ sentiment, as the upgrade aims to scale Injective’s real-time Ethereum Virtual Machine architecture and enhance its capabilities to support next-generation payments. The technical outlook suggests further gains if INJ breaks above key resistance.
Mixed UK inflation data no gamechanger for the Bank of England
Food inflation plunged in January, but service sector price pressure is proving stickier. We continue to expect Bank of England rate cuts in March and June. The latest UK inflation read is a mixed bag for the Bank of England, but we doubt it drastically changes the odds of a March rate cut.
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