Where Is Price Going?

By Sam Seiden of Online Trading Academy

Friday, June 29, 2018 7:29 PM EDT

Where price will turn next is everybody’s question and focus and that’s not a bad thing. The challenge and opportunity is about the question I hardly ever hear, Where will price go? This is one of, if not the most important things to consider when putting your hard-earned money at risk in markets. Let’s look at a recent trade I set up in our live trading room to illustrate the importance of the second question.

Where will price go we will call the Profit Zone. The profit zone is the distance in price between the entry point and the profit target price. Another way to say that is the distance between demand and supply. When looking for trading opportunities, people tend to focus on where the next big turn in price will happen.

These turns happen at price levels where supply and demand are out of balance. When looking at charts, you will find that there are many supply and demand levels. By no means are we interested in taking trading opportunities at all the levels we find. We only want to focus on big supply and demand imbalances, where banks and financial institutions are buying and selling. Our odds enhancers help us find these quality levels. When considering profit zone, we would ignore most of the supply and demand levels we find and narrow our focus down to the supply and demand levels that have large profit zones associated with them.

Sam Seiden – Live Trading Room: Gold Trade: 6/18/18

Knowing where price will turn is helpful, but knowing where price will go is key to choosing your profit zone.

To explain the concept of profit zone and its importance in trading, let’s take a look at the trade above from the other day, a shorting opportunity in Gold. Notice the supply level above. This is where we expected there to be more supply than demand, where banks were heavy sellers of Gold. The distance between the supply zone and the demand zone below is the profit zone. The blue line was the profit target.

Notice the price action between the supply zone and the blue line. That price action represents filled orders, meaning that price will have a very easy time moving through that level once we enter our position. In other words, there are no fresh demand zones to stop price from moving through that area. The trading opportunity was to sell short at the supply level above (circle at supply) and profit from a move down through that area below the supply zone to the blue line.

The key element here is to identify where the demand and supply is, and where it isn’t. Then look at current price and determine the path of least resistance as that is where the next move in price is likely to go. Keep in mind a very important point here: I am coming to all these conclusions before I enter the trade. You must perform your analysis in advance and make your decisions before it’s time to push the button or this will never work. Remember, when you are able to identify where supply and demand is, you are also able to identify where it is not and that is the key to the profit zone, which is the key to properly assessing the complete opportunity.

As I mentioned earlier, there are many supply and demand levels on a chart and many large and small profit zones. The key for the astute trader is to be able to identify objective supply and demand levels. Then and only then will you be able to find supply and demand levels that have huge profit zones associated with them.

What I do is ignore most supply and demand levels on a chart and only focus on the ones that have a great distance between them. This does two things. First, it obviously offers an attractive risk /reward opportunity. Second and just as important, the larger the profit zone, the greater the probability of the trade working out. This is because when you have a big profit zone, by definition your supply and demand levels are far out on the supply and demand curve. Entering your trades at market price extremes increases the probability of success.

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I understand that Online Trading Academy instruction will prepare me to actively trade securities and/or other financial instruments for my own account at an appropriate financial firm which utilizes the Electronic transmissions of securities and other financial instruments orders to execute trades for its customers. I understand that this course is not preparation to be a Licensed Broker in the financial industry and will not help me get a job.

Online Trading Academy Training Program should not be construed as a recommendation or an offer to buy or sell any security or the suitability of any investment strategy for Student. The purchase, sale, or advice regarding any security, other financial instrument or system can only be performed by a licensed Industry representative; such as, but not limited to a Broker/Dealer, Introducing Broker, FCM and and/or Registered Investment Advisor. Neither Online Trading Academy nor its representatives are licensed to make such advisements. All purchasers of the Online Trading Academy Training Program or other Online Trading Academy products are encouraged to speak with a licensed representative of their choice regarding the appropriateness of investing/trading or of any particular investment/trading strategy.

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As used on this Website and in our communications, the word "Graduate" or "graduate" means any person who has experienced our Core Strategy Courses (previously called Professional Trader Part 1 and Part 2) and any person who has experienced any other combination of classes which total at least seven full days of our trading and investing education.

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Understanding Trading Risks

Electronic active trading involves special risks and may not be suitable for everyone. Electronic active trading may also involve a high volume of trading activity. Each trade generates a commission and the total daily commission on such a high volume of trading can be considerable.

Electronic active trading accounts should be considered speculative in nature with the objective being to generate short-term profits. This activity may result in the loss of more than 100% of an investment, which is the sole responsibility of the customer. An electronic active trader should understand the operation of a margin account under various market conditions and review his or her investment objectives, financial resources and risk tolerances to determine whether margin trading is appropriate for them. The increased leverage which margin provides may heighten risk substantially, including the risk of loss in excess of 100% of an investment.

STATEMENT BY CHAIRMAN ARTHUR LEVITT SECURITIES AND EXCHANGE COMMISSION CONCERNING ON-LINE TRADING

JANUARY 27, 1999

Chairman Arthur Levitt today issued the following statement to investors:

The Internet and other new technologies are in many ways transforming how our capital markets operate. There are clear benefits to these changes including lower costs and faster access to the market for investors. I believe that investors need to remember the investment basics, and not allow the ease and speed with which they can trade to lull them either into a false sense of security or encourage them to trade too quickly or too often.

Over the last two years, particularly in recent months, the SEC has been hearing concerns about retail, on-line (Internet) investing. In fact, the number of complaints concerning on-line investing has increased 330 percent in the last year. Some of the issues raised specifically relate to on-line trading, others are generic to all investing. The majority of them can be addressed through better education and investors ensuring that they have done their homework.

Every day, more and more Americans are investing in the stock market, and many of them are doing so through the Internet. On-line brokerage accounts account for approximately 25 percent of all retail stock trades. And, the number of on-line brokerage accounts is expected to exceed 10 million by the end of the year.

While the manner in which orders are executed may be changing, the time-honored principles of evaluating a stock have not. An investor's consideration of the fundamentals of a company-net earnings, P/E ratios, the products or services offered by the company-should never lose their underlying importance.

Investing in the stock market-however you do it and however easy it may be-will always entail risk. I would be very concerned if investors allow the ease with which they can make trades to shortcut or bypass the three golden rules for all investors: (1) Know what you are buying; (2) Know the ground rules under which you buy and sell a stock or bond; and (3) Know the level of risk you are undertaking. On-line investors should remember that it is just as easy, if not more, to lose money through the click of a button as it is to make it.

In recent months, we have begun to identify a number of issues every on-line investor should be aware of. First, investors must understand the issues and limitations of on-line investing. You may occasionally experience delays on these new systems. Demand has grown so quickly that many firms are racing to keep pace with it. In the meantime, you may have trouble getting on-line or receiving timely confirmations of trade executions. You should not always expect "instantaneous" execution and reporting. There can and will be delays in electronic systems. You should investigate and understand options and alternatives to executing and confirming your orders if you encounter on-line problems.

Second, investors may sometimes be surprised at how quickly stock prices actually move. For example, many technology stocks have recently had dramatic and rapid price movements. When many investors attempt to purchase (or sell) the same stock at the same time, the price can move very quickly. Just because you see a price on your computer screen doesn't mean that you will always be able to get that price in a rapidly changing market. You should take precautions to ensure that you do not end up paying much more for a stock than you intended or can afford.

One way to do this is to use limit orders rather than market orders when submitting a trade in a "hot" stock. The result for investors that do not limit their risk can be quite surprising. Say an investor wanted to buy a stock in an IPO that was trading earlier at $9.00 and failed to specify the maximum they were willing to pay using a limit order. That investor could end up paying whatever price the stock has moved to at the time his order reaches the market -- $60, $90 or even more. If, on the other hand, the investor submitted a limit order to buy the stock at $11.00 or less, the order would only be executed if the market price had not moved past that level. Investors should understand the risk associated with trading in a rapidly moving market and make sure that they take all possible actions to control their risk.

Third, I am concerned that investors buying securities on margin may not fully understand the risks involved. In volatile markets, investors who have put up an initial margin payment for a stock may find themselves being required to provide additional cash (maintenance margin) if the price of the stock subsequently falls. If the funds are not paid in a timely manner, the brokerage firm has the right to sell the securities and charge any loss to the investor. When you buy stock on margin, you are borrowing money. And as the stock price changes, you may be required to increase the cash investment. Simply put, you should make sure that you do not over-extend.

Fourth, while new technology available to retail investors may resemble that of professional traders, retail investors should exercise caution before imitating the style of trading and risks undertaken by market professionals. For most individuals, the stock market should be used for investment not trading. Strategies such as day trading can be highly risky, and retail investors engaging in such activities should do so with funds they can afford to lose. I am very concerned when I hear of stories of student loan money, second mortgages or retirement funds being used to engage in this type of activity. Investment should be for the long-run, not for minutes or hours.

Millions of new investors have taken advantage of the unprecedented access and individual control the Internet provides. But, new opportunities present all of us with new responsibilities, challenges and risks. The SEC will do everything it can to protect and inform investors during this time of great innovation and change. But, investor protection-at its most basic and effective level-starts with the investor. I say to all investors-whether you invest on-line, on the phone, or in-person-know what you are buying, what the ground rules are, and what level of risk you are assuming.

Important Information about trading Foreign Exchange.

Trading foreign exchange is not for everyone. Trading foreign exchange on margin carries a high level of risk, and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading, and seek advice from an independent financial advisor if you have any doubts.

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