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Supply and Demand

Book Review: Price Action Breakdown by Laurentiu DamirWhen I started trading I was extremely excited about the possibilities that lay before me… The dream of changing your work ethic from “working for your money” to “putting your money to work for you” was intoxicating. I took every class, read every book, followed every “guru” I thought would help me get that ‘edge’, that secret sauce, to make me a great trader. Once I discovered what actually worked, and actually *did* the work of putting that knowledge into practice, I found that trading, like so many other things, follows an 80/20 rule, where 80% of your results come from 20% of your actions. I asked myself what was really important in trading, and I distilled it down to 2 points: Psychology, and Price Action. Notice, I put Psychology first. After reading about, backtesting, sim trading, and live trading so many techniques by so may experts I have distilled (culled?) the instruments in my trading toolbox to a select few. Like that scene in Gran Torino when Clint Eastwood is teaching his young asian friend how to “be a man” and learn to fix things, he gives him Duct Tape, WD-40, a pair of pliers, and said “This will help you fix half of your problems.” www.youtube.com Similarly, I now only have 2 books that I read or listen to a LEAST once per quarter. This advice in them takes care of 90% of my trading needs. This also helps me stick to the basics. Repetition is the mother of skill and we need to constantly be reminded of (and practice) those basics. Today I wanted to share with you one of those two books: Price Action Breakdown, by Laurentiu Damir. This book is going to put you to work. Trading, like any other skill, is something you learn by DOING. You can’t learn carpentry by simply reading a book. You can’t learn painting by only reading a book… you have to take a chisel to wood or a brush to canvas to put that theory into PRACTICE. Likewise, Laurentiu puts you to work trading, lesson by lesson, concept by concept. He simply and demonstrably shows the aspiring trader that all the information we need to decide to buy or sell is right there on the chart. No indicator, oscillator, or other doo-dads are needed. As he puts it, "The best indicator you can have is your brain analyzing the raw price movements.” He breaks down the specific patterns that we as traders need to look at to “see the opportunity” on the screen, notably value areas, excess price, control prices, and rejection areas. There is no mention of chart patterns (head and shoulders, triple bottom, cup and handle, ascending triangle, blah, blah, blah…) or candlestick patterns (bearish engulfing, dojo, shooting star, hammer…) - It’s all about price action. When you look at a chart and see who is buying what and where, you can make an educated decision on where to buy and sell right alongside the institutional market makers who are moving price. Quote: "Throughout this book, whenever I will discuss about buyer and seller behavior, I am talking about the long term traders. They are the ones who move the markets, it makes all the sense in the world to study their behavior, observe how price moves as a result of their actions, and formulate concepts, rules and strategies to follow what they do, to be in the same boat as them. We have to discover their footsteps and follow them." I’m a Kindle guy, and my trading partner bought the hardcopy on my recommendation. The hardcopy is a unique piece of work in terms of its layout, font choice, and stark coloring. I don’t know if it was intentional, but the fact that it is so physically *different* from other books almost makes you give what you are reading that extra bit of attention. My friend, too, owes much of his success to the techniques in this book so I never hesitate to recommend it. I hope if you decide to get this book that you will put all the necessary WORK in that is required to put concepts into practice… to imbed it into your nervous system so you can “see the money” on the chart just like Neo could see The Matrix and easily defeat what was previously an undefeatable opponent. youtu.be In a later article I will talk about backtesting - something that every trader needs to do to build up his skill, to test a trading methodology (such as price action!), and to help keep you “in the zone” (teaser for my next book review!) so as you develop and hone your trading skills, that you will keep that skill and sharpen your trading saw day by day and enjoy the benefits of being a professional financial trader. I would say 'good luck', but luck has nothing to do with developing the skill of trading just as it wasn't 'luck' that made Michael Jordan the best basketball player or Tiger Woods the golfer in the world. It was perseverance, grit, and repetition. Happy trading! smile.amazon.com
Education
by ocaptain
21
BTCUSDT candle wicks, volume expansion at supportBTC can be surreptitious in its volume. The good thing is that when you hav large volume spikes in BTC at your target it tends to play out. Just a simple example of volume increasing as price nears support. Schematic to the right to help. Large wick at the bottom of a candle with low volume means? Large wick at the bottom of a candle with high volume means? Accurate Candle/volume interpretation will make you a profitable trader. Its actually very easy.
Education
by dee718
The Death of Buy and Hold. Stop Investing and Start TradingEver since the invention of the Mutual Fund, then IRAs, or even going back to the ownership of individual stocks, the “common man” has been taught to “Buy and Hold” when it comes to their investments. Even today, investors are taught to put their hard earned dollars in a “lock box” and told to "let it grow"... We are told things like “Let time be on your side”… “Don’t worry about that downturn, the economy always recovers”... “Start when you are young” and most disastrously, “Buy strong companies in an uptrend, those who have demonstrated consistent growth...” This article may be a revelation. This article may make some people angry about the past decisions they have made. And some might also also say “That guy doesn’t know what he’s talking about.” To explain this I’m going to have us look at three things: a Paradigm, a Parable, and a Pair of Powers. =============== The Paradigm of the Financial Markets. =============== This might be the most important of the three concepts I will talk about in this article. When we understand this one concept, this one paradigm, this one way of thinking will transform us from being a “consumer” of financial products to a “trader” of the financial markets. As traders or investors, we are putting our money into an entity known as the “Financial Market.” Whether the vehicle you are using is a company, a commodity, or a currency… a stock, an option, a futures contract, or a ForEx pair, every single “in and out” represents a transaction between a consumer and a producer or supplier. Now, why is this global pile of securities collectively called a "market”? Well, like any other market it’s a place where “products” are bought and sold. Just like the smartphone market, the automobile market, the ice cream market, and the farmer’s market, the financial market is EXACTLY the same… only we deal in virtual products that we buy and sell by clicking buttons and moving our mouse instead of having to warehouse our inventory and provide a storefront. So, IBM, is a *product*; Tesla is a *product*, Oil and Natural Gas are *products*, and the Euro, Yen, and Kiwi are *products*, no different than a Ford Focus, an iPhone, or a pint of Ben & Jerry’s. Now, in any transaction in any market, who is it that makes money, the consumer or the store owner? You guessed it… the store owner! For *decades* now (going on centuries, actually) we have been conditioned to be *consumers* in a market when it’s the *producers* which are the ones who make the money! We have to switch our thinking. We need to think like a store owner or retailer rather than a customer. Now, how is it that any retailer, any store, whether it’s the ice cream man or Amazon.com, makes their money? They find a way to buy products (inventory) at *wholesale* and sell those products to consumers at *retail*. What do retailers like Amazon and WalMart sell? ANYTHING and EVERYTHING that they can get their hands on where they can buy at wholesale, mark it up, and sell it to the consumer at retail. So how can we make money in the financial markets? Just like Ben and Jerry do in the Ice Cream market. Just like Ford does in the automotive market. And just like Apple does in the personal computing market. We need to do as the Amazon do. =============== The Parable of the Retirement Industry (A Totally True Work of Fiction) =============== Once upon a time (1975, actually) there was a meeting of all the FatCat bankers. They all were having a grand time sipping their whiskey, smoking their cigars, bragging about their riches and success but they all agreed that they wanted even MORE. Looking back at the Stock Market they noticed that S&P really hadn’t moved much in the last 20 years. They said to themselves, “You know, all we are doing is trading all this inventory among ourselves and price is just SITTING there… How can we create a DEMAND for our product so we can see it go UP in value?” In comes New Kid on the Block, John Bogle, founder of Vanguard Securities. “Gentlemen,” he said, “I’ve got a great idea… Let’s give every working man in America a bucket… we’ll call it a Mutual Fund. And we’ll tell them that THEY have to fill it with all kinds of stocks: industrial stocks, medical stocks, automotive stocks, power company stocks, telecom stocks, and the more and more people start ‘saving for their retirement’, the more people will be buying our ‘products’, there will be more and more DEMAND every year and BOOM - the price of our products will skyrocket! (Insert sinister ‘Muwahahaha' laugh here…) So the word gets out to the street and into the business world: Your employees now have the opportunity to save for their retirement using their own money! (Which took employers off the hook from providing their own pension programs as the 401k industry began to grow.) So year after year, more and more Americans bought into the program, and as demand surged, so did the market. For the next 25 years the S&P would see a bull run like NEVER before! So what happens for these 25 years is a natural effect of Supply and Demand. As the limited “supply” of available stocks is becoming consumed by the American workforce, demand goes up. And it works great…. For 25 years. BUT… what happens when those 20-30-and 40-somethings who are working and buying, working and buying, working and buying, creating all that DEMAND… What happens when they become 40-50-and 60-somethings who begin to retire? They begin SELLING those stocks (creating monthly retirement income) and now we start seeing a REDUCTION in demand and an INCREASE in supply as the “balance of power” shifts and there are now more Sellers than Buyers - and the tide now turns in the epic cosmic struggle that goes on in the financial markets day after day, year after year, minute by minute. So what happens to these retirees who have lost HALF their savings by the time 2002 rolls along? They have to stop the bleeding! They go back to work so they can (a) have income and (b) put MORE money into The System so they can reclaim the level of retirement income that they need to go back into retirement. So now they are no longer sellers, but they are once again buyers, driving the price of the ‘products’ in their portfolios back up to pre-crash levels as the balance of power shifts back into the hands of the buyers. Five years go by… The people went back to work see that their 401ks are back to pre-crash levels, they quit their jobs, and the cycle starts all over again when there are now more buyers than sellers. Ack!!!! Now come into the present day where the market is at all time highs. Price has been whipsawing for the last 24 months! What in the blue blazes is going on? The same thing that has been going on since the dawn of retail sales in an open market: products are being SOLD to customers at retail, and BOUGHT from them at wholesale. =============== The Pair of Powers =============== So how does this happen? The first power is the power of FEAR and GREED. When we master our fears and temper our greed we can make the RIGHT decisions in the market. What has the average investor been taught for DECADES? To buy strong, healthy, up trending stocks. “Look at that company… they’ve been up trending for 18 months.” “Look at *that* company… they’ve been showing healthy growth month after month for the last year.” “Don’t miss out… you’ve already let the stock go from 25 to 85… you don’t want to miss the boat, do you?” BUY! BUY! BUY! The Fear of Missing Out (FOMO) and the greed of wanting to “make it rich” lets the novice investor be a slave to the emotions of Fear and Greed. So they buy. And what inevitably happens… You guessed it, the stock starts to falter, starts to fumble, has some bad news come out, is affected by CoronaVirus or other event or excuse. So once the stock gets to a new low price, they get scared (FEAR) and sell back to the broker so they can “cut their losses.” Economically, what did the ‘customer’ do in this case? They BOUGHT a product at “retail” and they SOLD the product at “wholesale.” Just like they would if they were buying a car. Go to the local auto dealer, buy a new car for $30,000, and later sell it for $10,000 when you trade it in for the next year’s model. We need to start thinking like the RETAILER, or in this case, like the financial institution SELLING the products at RETAIL and BUYING them at WHOLESALE. Warren Buffett once said that investors need to be “fearful when others are greedy, and greedy when others are fearful.” Trading psychology in a nutshell. The second power is Supply and Demand. Everything on the planet from Beanie Babies to Cabbage Patch dolls to 1970’s-era Star Wars action figures and yes, Financial PRODUCTS in a financial MARKET has its VALUE determined by the simple market forces of Supply and Demand. =============== The Solution: Hiding in Plain Sight =============== So, all that to say is, Buy and Hold is not only dead (which indeed worked great from 1975 till 2000) but it’s pretty much the great American Lie still being told to this very day every time someone enters the workforce and is encouraged to “put a little away every paycheck toward your future”. The Financial Markets are the ONLY markets in which we are conditioned to pay full retail for a product (look at that uptrend, look at the strong growth!) and sell at wholesale (Well lookie there, you’re losing money… let’s get you out of those losers.) There is NO other market - be it the automotive market, the electronics market, or the farmer’s market - where we are happy to pay full price. I want my stuff on SALE, and that includes my investments! Still not a believer? Let the money do the talking. Looking at the Chart at the top of this article, (also posted below), if you started investing in 1997, you would have had a ZERO NET RETURN after 12 years. If you started investing in 2000, you would have quickly lost HALF your investment, and broke even for a ZERO NET RETURN after 13 years. “Hey, I was told that time is on my side… I just let a DECADE of my life go by with a ZERO return!” If you were unfortunate to begin investing in 2018, you would have experienced six vicious whipsaws in just 33 months. Who needs that kind of heartburn?!?! And where is the market going to go? Up? Down? Do *you* or your financial planner have a crystal ball? Remember: Every financial planner and investment firm has that oh-so-handy get-out-of-jail-free card: “Past performance is not an indicator of future results.” Buy and Hold is DEAD, which means that we can’t afford to be INVESTORS, which is as good as throwing your money into a casino. We need to be TRADERS where we can “follow the money” and see where the major financial institutions, the “movers and shakers” of the market, the “market makers” are CREATING those levels of wholesale and retail, of Supply and Demand, and BUY when prices are at wholesale and SELL when prices are at retail - the exact OPPOSITE of what we have been taught in the Financial Market but the very SAME thing that we do in Every. Other. Market. When we learn to be the store *owner*… When we learn to buy at wholesale to sell at retail… when we learn to “follow the money” using a PROVEN system of trading that identifies these levels of wholesale and retail, we will no longer suffer the whims of the market. Just like WalMart, just like your local grocery store, we will be able to see *consistent* monthly profits if we take *consistent* action and we learn to *control* our emotions and trade like a Vulcan. Trade like Spock. “Trade long, and prosper!” Buy and Hold is dead! Long live Supply and Demand!
SP:SPXEducation
by ocaptain
141
GBPJPY Using RSI (water flooding a raft metaphor)Instead of the traditional verbiage "overbought" and "oversold" I like to think of these two levels as "supply" and "demand" There are numerous examples to point out but here I have isolated only 2 of them. Point 1 = DEMAND (oversold) Point 2 = SUPPLY (overbought) In general it is ideal to look for entries and exit targets on the edges (standard deviations). You can ascertain quite a bit of information regarding the bullishness or bearishness of a trend when you wait for volume information at or past standard deviation. Just to keep it simple focus your attention at points 1 and 2. Then look at the amount of demand pressure or supply pressure . One way to visualize all of this is to imagine that whenever RSI breaks the supply or demand level its like a sharp object puncturing a raft. On the supply side, How much water (volume) is rushing into the raft? The more water that floods the raft may mean that the raft may soon sink. On the demand side, whenever RSI punctures the demand side of the raft, how much air is rushing in? The more air that rushes into the raft, the better it will hold up in the water. I like to wait for RSI to hit either the supply or demand side on the 1 hour and from there zoom into the 5 and or 15 minute to identify the Wyckoff phases to go with the trend.
Education
by dee718
Short-time downtrend and long-term uptrend is still working Confirming last analysis we are in a very nice retracment pattern in Gold. As we expected down trend worked and price came towards its last big support of 1861usd.If you are intraday trader note carefully that downtrend is still working and and high is just a retracment. As you can see in my daily chart we have a nice unbroken demand zone 1790to1816 and a strong support zone inside that. I personally will be waiting to open long position there. If you areusing 4h timeframe or less, you can sell for short-time but be careful about long term trend. It is heavily uptrend.
OANDA:XAUUSDEducation
by asharifan
The market does NOT care about your target.DISCLAIMER: Trading Forex involves risk and you may lose more money than you started with! These posts are not to be taken as trade recommendations or financial advice and I offer NO guarantee that any of these ideas will result in profit. Also, trade ideas may change, depending on ever-changing market conditions. You are trading at your own risk and past performance is NOT indicative of future results. Please, know how much you are willing to risk on EVERY trade that you take and be SMART! Simplify your trading. Always measure your risk and be okay with being wrong ; ) Wait patiently and get the price that you want. Use the market. Don't let the market use you.
Education
by Simple_Renko
2