What Do You See on a Price Chart?

Posted On 30 Aug 2016

When everyone is introduced to the picture below for the first time, they are told there are two faces to look for. One is an older woman with her head slightly tilted down with a big nose and chin. The other is a younger woman looking away with a necklace. However, when most people look at the picture for the first time, they see one face or the other. They don’t know there are two until you tell them. Price charts of financial markets are much the same.

Learn what to look for on a price chart to make consistent profits trading. Consistently profitable market speculators see price charts very differently from those who consistently don’t achieve their financial goals. The goal for most traders is consistent profits, life – long income from speculating in markets. The key word in that sentence is “consistent”. Anyone can have profitable trades here and there, but do they produce consistent income and profits from trading. I have a friend who day trades the S&P Mini and has a very strong winning percentage, but the problem is he doesn’t make consistent income from trading. Sounds crazy I know, but one loss for him tends to wipe out all the profits.

We teach our students many things beyond core strategy in our classes and Live Trading rooms (XLT), including “Odds Enhancers” for income and wealth. Once you learn the foundation, analyzing a chart really comes down to identifying two key things, strong supply and demand levels and large profit zones. Without a path for price to move after we enter a position on the chart, there is no trading opportunity so the profit zone is really key. What we are looking for are supply and demand levels with plenty of room between them. There are many candles on the chart but out of the many candles, which ones represent the picture of the opportunity we are looking for, the two key things mentioned above.

OTA Supply/Demand Grid Trade: Dow Futures – 8/26/16

SPY Option Trade 8/26/16: Buy Puts – Bearish

The chart above illustrates my point. Let me explain the two trades we took that we found using our supply and demand grid; one was for income using Futures and the other is a longer term wealth trade using options. Both trades were entered from a key supply zone the equity index markets reached Friday Aug. 26th.

Notice the supply level on the bottom chart, shaded in yellow. The supply level is the origin of a strong decline in price and has with it some very key Odds Enhancers that make it a significant level where banks and institutions are likely selling, where supply greatly exceeds demand. The trade was to bet on a downside move, selling short at the supply level (circled area) for a move down in price. What made this trade work well are two specific odds enhancers. First was the quality supply level. Second, notice the big profit zone on the downside from the supply level. This means that when price reached the supply level where we sold short, price was likely to fall just as fast as it rallied because there was no significant demand to stop it from falling (few buy orders).

Next, focus on the grey shaded area. In this area, notice price moves quick and freely. This is because it’s a price range with no significant buy or sell orders in it. When you have a supply or demand zone around areas like this it means opportunity for price to turn and price to move.

Much like the women’s faces above, you need to know what to look for. On a price chart that means clearly knowing the difference between what the grey shaded picture tells you about buy and sell orders and what the yellow shaded supply and demand areas tell you. This quickly answers the only question that matters: where will price will turn and where it will go. Most will never see the difference between the grey and yellow price activity unless you tell them, and that’s your edge. Actually, most will never even know to look for a difference. The yellow is where banks are buying and selling and the grey is meaningless activity at the time of our decision to execute the trade at supply.

Everything you need to see is on the price charts, if you know what you’re looking for. When you look at a price chart, what do you see? Do you even know what you’re looking for? At the end of the trading day, all that matters are two simple questions… Where is price going to turn and where is price going to go? Sharpen your focus and your trading and investing life might just change for the better. My hope is that today’s little nugget of information helps you achieve the consistency you’re looking for.