Long Term Levels
Long Term Levels
When using supply and demand to identify turning points in a market, a question that comes up often is, ìHow far back should I look for a supply and demand level?î The proper answer is this: Look back as far as you need to in order to find ìfreshî demand and supply. The key word is fresh as those represent the highest probability turning points. The definition of fresh is beyond the scope of this piece but thatís ok.
Since the Mastermind Community began, our Supply and Demand service has identified the turning points in some of the major markets most days. I produce these levels and they (this service) come out each day of the week very early in the morning. The reason for the strong consistent success of these supply and demand levels is I am focused only on institution and bank demand and supply, nothing else. In other words, the levels that you see on the grid below are levels where banks and institutions are buying and selling. Having this information as a day trader, swing trader, and longer term investor is key. On two recent days, I received many questions about certain levels. The first one was the one you see below, I took a picture of the web page from that dayís levels and added the chart a day later. On March 22nd, I identified an institutional supply level in the NASDAQ Futures at 2740 ñ 2750 (not shown on chart). Meaning, according to our rule based supply and demand analysis, the institutions have plenty of supply in that price range.
Figure 1
The very next day, price rallied up to that level (circled area) and collapsed, offering Online Trading Academyís Mastermind students a low risk, high reward, and high probability shorting opportunity. The question many students had was: ìHow was that level found given that the last time price had been at that level was over 10 years ago?î While I canít go into every detail on how that level was identified, we can explore some points of interest in hopes that the information will help take your trading to the next level. I did look back at the charts from over 10 years ago to find that level. When I looked back, I looked for the picture on the chart that represents institutional supply and there it was. It also had all our ìOdds Enhancersî associated with it which made it a key level. I am not suggesting that the same sellers who sold at that level over a decade ago are still sitting there with sell orders, thatís not the case. What the chart does however is show us the aggregate supply and demand equation at each price point in a market.
Figure 2
A few days later on March 27th, I identified a price level in the S&P Futures where institutions had major supply, 1420.25 ñ 1427. As you can see on the chart, shortly after I posted that level for our Mastermind traders, price rallied up to that level (circled area) and collapsed as it should. This offered our students/traders a low risk, very high reward, and extremely high probability shorting opportunity. When I shade levels a darker red as with this one, that means all the Odds Enhancers are very strong. This level however which is not seen on the chart was from 4 years ago. This one created a few more email questions from students asking: ìAre supply and demand levels from a long time ago any good?î The answer is yes yes yesÖ In fact, these are some of my favorites. The reason is thisÖ Think about it, the fact that price is revisiting a supply or demand level from so long ago means by definition, ìpriceî is way out on the supply and demand curve, extremely high or low. This means levels in these areas are going to be higher odds by definition.
Below is an example from a while back but I reference it because everyone will remember it. The BP oil spill disaster in the Gulf of Mexico was a real and horrible event. In the Extended Learning Track (XLT), I identified a demand level for our students as you can see on the chart. BP shares reached that demand level in 2010, the year of the disaster but the XLT demand level was created in 1996. Price declined to our demand level where institutions were buying BP shares and that was the low. One of our XLT students who took the trade emailed us about the trade. You may be wondering why we were not interested in buying at the pivot low around 35. Pivot lows are conventional support and resistance levels, not fresh supply and demand levels. Remember, if trading were as easy as reading a book, everyone would be making money.
Figure 3
The point of this piece is not to impress you but more importantly to impress upon you two very important things:
1) The key to knowing where market prices are going to turn in advance and also where prices are going to go with a very high degree of accuracy is knowing exactly what institution/bank demand and supply looks like on a price chart in any market and any time frame. This is our focus in the XLT and Mastermind Community.
2) Understand that supply and demand levels created long ago can serve to be very strong levels. The fact that they were created long ago is not a bad thing, itís actually a positive for the reasons discussed in this article.
Hope this was helpful, have a great day.
About Sam Seiden
Sam brings over 15 years experience of equities, forex, options and futures trading which began when he was on the floor of the Chicago Mercantile Exchange where he facilitated institutional orderflow.. 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.
View Sam Seiden's post archive >
