Comprendre les notions de « supply (resistance) » et de « demand (support) » est impératif. Voici un court article écrit par Sam Seiden qui nous éclaire sur ces notions si fondamentales.
The key to trading anything is to attain the lowest risk, highest reward and highest probability entries into a market. To do this, we must be able to predict where markets are going to turn (change direction) in advance, with a very high degree of accuracy. The professionals say you can’t do this. I say you absolutely can do this with a VERY high degree of accuracy. The first step in attaining this skill is to understand the reality of how and why market prices move the way they do.
The reality is that markets are nothing more than pure supply (resistance) and demand (support) at work; human beings reacting to the ongoing supply/demand relationship within a given market. This alone ultimately determines price. Opportunity exists at price levels where this simple and straightforward relationship is « out-of-balance. » When we treat the markets for what they really are and look at them from the perspective of an ongoing supply/demand relationship, identifying low risk, high reward, and high probability trading opportunities is not that difficult a task. Those who understand this reality simply get paid from those who don’t. It is literally a transfer of accounts. To properly deliver this market timing concept to you, we need to focus on two important components of trading.
Where do market prices always turn?
Who is on the other side of your trade, a Pro or Novice trader?
Understanding who is on the other side of your trade is crucial information. If there is a novice trader on the other side of your trades, you’re going to have consistently profitable trades. If there is a consistently profitable trader on the other side of your trades, you are going to have consistent losses. How do you know the difference? My experience from the trading floor handling institutional order flow opened my eyes to a powerful observation. The consistent losing trader (novice) always makes two clear mistakes. When buying, they always buy after a rally in price which is mistake number one. And, they always buy into a price level where objectively, supply exceeds demand which is mistake number two. When selling, they sell after a decline in price and at price levels where demand exceeds supply. The laws of supply and demand ensure that this trader will lose consistently. Meaning, if we can identify the novice trader and trade with them, we will be consistently profitable. The novice trader does make money once in a while, but be assured that in trading, money always ends up in the hands of its rightful owners.
Let’s now see what all this looks like on a price chart by reviewing two trades that I took in my account while trading Gold and the Euro futures, two popular markets on the SMX.
Above is a chart of the Gold futures from the SMX. There is plenty of information on this chart including price, volume and some indicators. Let’s take a deeper look into the price action alone to see how our two concepts together lead to a very rule-based, low risk, high reward and high probability trade.
Gold Futures, Intra-Day Chart / Low Risk Profit: $1,200
Let’s focus on step number one, learning how to identify Supply and Demand levels on a chart as this is where prices turn. Notice the top yellow shaded area on the chart labeled « supply. » We call this a supply level because when price was trading at that level in the yellow shading, it could not stay there and declined from that level. The only reason why price declined from that level is because supply exceeds demand. In other words, there is a big supply and demand imbalance at that level. Notice the arrow showing where I sold short. This is when price rallied back to that supply level. Now let’s talk about step number two. When I sold short, who was on the other side of my trade? Who was the buyer? Was it a consistently profitable trader or a novice trader? The answer is novice and I knew this well before I sold to them. I knew this because that buyer was making those two mistakes that every consistent losing trader makes. They were buying after a rally in price, mistake number one, and into a price level where the chart already told me, supply exceeded demand. My profit target was just before the yellow shaded area below as that is where the « demand » was. How did I know this was demand? Because when price was down at that level, it could not stay there and rallied away. This is because inside those candles, behind the scenes, there is a big supply and demand imbalance. But again, when I bought back for the profit, who did I buy from? Who was on the other side of my trade? Was it a consistently profitable seller or a novice seller? It was again a novice seller and I know this because they were making the same two mistakes, selling after a decline in price and at a price level where demand exceeded supply. The laws of supply and demand ensured me that the buyer who sold to me and seller who bought from me were trading with the odds completely stacked against them, which means they were stacked in my favor. Not every trade is going to work out profitably for me, but most should and they certainly all don’t have to. I ended up making $1,200 on this intra-day trade while having about $400 at risk.
Another way to think about all this is to think in terms of wholesale and retail. Instead of calling the levels supply and demand, call them retail and wholesale; that’s what they really are. All I am doing is selling at retail (supply) price levels to people who are trained to buy at retail levels. When buying, I am buying at wholesale (demand) price levels from people who are trained to sell at wholesale levels. If you think that this information is too good to share and that if it gets out, too many people will know it and it won’t work anymore, think again. Everyone on the planet is taught to do this wrong. That’s why the failure rate among traders is so high. From a young age, people are taught to buy at retail levels and sell at wholesale levels. Think about how you were taught to buy into a market. Most people around the world buy stocks so let’s think in these terms. We were all taught to buy a « good » company, with a strong balance sheet, solid management, very strong earnings, and when the price of the stock is in an « uptrend. » Think about it, where do you think the price of the stock is when all these items are true? It can’t possibly be anywhere close to wholesale (demand) levels. In fact, it’s almost always at retail (supply) prices. This is where most people are taught to buy which is exactly where I am excited to sell.
Euro Futures, Intra-Day Chart / Low Risk Profit: $1,032.75
Here is a recent short-term trade in the Euro futures. Again, this is an example of simply selling short (circled area) at retail prices (supply, yellow shaded area) to someone who is trained and conditioned to buy at retail prices. The key to doing this successfully for a trading career is to first have the ability to identify and quantify solid supply and demand levels. When I say supply and demand, I am by no means talking about conventional support and resistance that you read about in the trading books. That school of thought is about as flawed as you can get. Second, you must have a simply rule-based strategy that has you selling at supply (retail) and buying at demand (wholesale). Again, if this sounds too simple and that everyone should be making plenty of money trading, remember how everyone is taught to buy and sell in markets from a very young age. Just about everyone is taught to do this completely wrong. So, before you start your trading career and put you’re hard-earned money at risk, let me leave you with the most important message I can. Understand that how you properly buy and sell anything in every other part of your life is EXACTLY how you properly buy and sell in markets when trading.
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