I have been involved in financial markets for more than 20 years now and I?ve heard so many times that market timing is impossible.
Usually from Wall Street financial firms telling the mass investing public to blindly put as much money into the market as soon as you can and leave it alone. The key ingredient they always leave out is to buy (and sell) at the right price. This is interesting because what do you think every successful Wall Street firm and profitable market speculator focuses on first and foremost? The PRICE at which they enter the market and the PRICE at which they exit the market.
Predicting market prices (market timing) is very possible if you know what you?re doing. While I know I write about this topic often, I want to try another way of explaining it in hopes that you will end this article with a stronger market timing skill set than when you started. Let?s look at the trade below. This trade I took was found using one of our services, the OTA Supply/Demand grid. The grid focusses on identifying where banks are buying and selling in the 35 major global markets. This trade was in the Dow Futures and it was a shorting opportunity.
OTA Supply/Demand Grid: 12/2/15 ? Dow Futures
The Yellow box above is the supply level from the grid. The little circle is where I and other members who use the grid had the opportunity to sell short, which I did. Price proceeded to rapidly decline for a profit, but the focus of this piece is; how did we know that was going to happen? Let me explain?
To figure out where price will turn and where it will go, let?s focus on what the candles in the yellow shaded area represent, and the same with the candles in the grey area.
Yellow: Price was trading sideways for a short period of time and then fell. This can only happen because supply exceeded demand at that level. Meaning, when price fell there were still ?unfilled? sell orders in that area. Therefore, when price rallies back up to that area where banks are selling, we expect price to turn and decline. How much price will decline depends on the grey area of the chart.
Grey: Notice two things? First, all the trading activity in that area. As mentioned above, what turns price is a significant supply/demand imbalance. At a price level/range where you have plenty of trading activity, there can?t be a significant supply/demand imbalance. If there was, price would not stay in that area and you would not see so much range trading. Also, notice the pivot lows in that area. Ask yourself, are they the picture of unfilled orders or orders being filled? Each time price declines and you have those pivot lows, more and more of the demand (buy orders) are filled, meaning less demand. So, the grey area clearly tells the astute market player that any significant buy orders are filled and that price should decline quickly through that area, as it did.
The key is learning to see the difference between price levels with unfilled and filled orders on a chart. This and only this is why price changes direction and moves in any and all markets.
Hope this was helpful, have a great day.
Sam Seiden