Supply and Demand Trading is used by many well known institutions, commercial and individual traders to assess high probability trading opportunities. In order to do so we use methods to locate a definitive area where there are many orders waiting to be filled, otherwise known as “unfilled orders”. Before moving on let’s define the difference between “filled” and “unfilled” orders.
These are orders that have been placed and executed by a broker to an exchange and the transaction has already taken place. An example of a filled order would be if you hit the buy button for 1 futures contract and there is an available contract at your specified price for sale you would take ownership of that contract. When you take ownership of this contract that order has now been filled and therefore your order is no longer waiting.
These are most often caused by limit orders being placed to specify an exact price point (or better) to purchase or sell an instrument. The order(s) are placed & reside on the exchange until an opposing buyer/seller becomes available at that price point or better, therefore you take no ownership and your order waits.
By understanding where the unfilled orders reside on any given exchange we are able to increase the percentage of knowing where price will turn. How? New orders are constantly placed and cause price movement or volatility. If we only know of the new orders there will typically not be enough at one time to make a large reaction, however when we combine unfilled orders (at a specified price) with new orders being placed it simply becomes a math and money game (“He who holds the most WINS!”).
Now we will define a pivot point to see why they are lagging Supply and Demand Trading information. A Pivot Point is a significant price level of a financial market which is used by many to predict the future movement of price. As seen below a pivot point is similar to a V shape or an upside down V shape. It indicates that price has turned at this exact price point in the past. Due to the nature of the shape we know that price returned to a certain location and turned in the opposite direction. The question to ask here is WHY did price turn here? Price action is only capable of calculating “filled” orders, thus if a pivot point is calculated it would mean the orders were in fact already filled. The only remaining question is how many of the orders were actually filled and how many were left unfilled.
To simplify the answer; a Pivot Point is a retracement back to a level of unfilled orders followed by a large reaction caused by an abundance of those orders being filled in the opposite direction. It is important for us to look further than just historical turning points. A pivot is certainly information that we want to be aware of and will help to make more informed decisions, but if we are trading true supply and demand for the future movement of price adding both types of orders can benefit you substantially.
CFTC RULE 4.41 HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing one's financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results. All Software provided or purchased is strictly for educational purposes only. Any presentation (live or recorded) is for educational purposes only and the opinions expressed are those of the presenter only. Testimonials may not be representative of the experience of other clients or customers and is not a guarantee of future performance or success.
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