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 extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
USD/JPY dips to test a previous top at 156.60 following hot Japanese inflation
The Yen trims some losses following higher than expected inflation levels in Japan. The hot inflation figures have increased hopes of a BoJ hike in January. Technically, the pair is correcting lower, after having reached strongly overbought levels.
Editors’ Picks
EUR/USD extends recovery beyond 1.0400 amid Wall Street's turnaround
EUR/USD extends its recovery beyond 1.0400, helped by the better performance of Wall Street and softer-than-anticipated United States PCE inflation. Profit-taking ahead of the winter holidays also takes its toll.
GBP/USD nears 1.2600 on renewed USD weakness
GBP/USD extends its rebound from multi-month lows and approaches 1.2600. The US Dollar stays on the back foot after softer-than-expected PCE inflation data, helping the pair edge higher. Nevertheless, GBP/USD remains on track to end the week in negative territory.
Gold rises above $2,620 as US yields edge lower
Gold extends its daily rebound and trades above $2,620 on Friday. The benchmark 10-year US Treasury bond yield declines toward 4.5% following the PCE inflation data for November, helping XAU/USD stretch higher in the American session.
Bitcoin crashes to $96,000, altcoins bleed: Top trades for sidelined buyers
Bitcoin (BTC) slipped under the $100,000 milestone and touched the $96,000 level briefly on Friday, a sharp decline that has also hit hard prices of other altcoins and particularly meme coins.
Bank of England stays on hold, but a dovish front is building
Bank of England rates were maintained at 4.75% today, in line with expectations. However, the 6-3 vote split sent a moderately dovish signal to markets, prompting some dovish repricing and a weaker pound. We remain more dovish than market pricing for 2025.
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