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So far, your explanation makes perfect sense. But I see a few things unanswered. How do you determine where the peak demand or supply is? From MP? Price-by-volume indicator? And how do you determine the low/high zone where to place your stop when you go long on peak demand area or short on peak supply area? How do you make the entry? When momentum reverses in the opposite direction. Say, when and if it hits 787.6, do I wait for the next bar to go higher than the previous bar to go long?
The other question is, from last Friday's MP, I see a P shape, so this means that 792 is not absorbed yet but it's no longer peak demand area correct? Since we don't know what Wednesday's MP shape will be, we expect Wednesday to be in 792-799 action seeing Friday's MP shape? |
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Hi Torero,
I missed this post the first time, sorry:
"How do you determine where the peak demand or supply is? From MP? Price-by-volume indicator?"
I look for areas where there are imbalances in the supply demand equasion that are continuation areas in the current trend. Best way to describe this is a consolidation area preceeded by a up candle in a uptrend or a consolidation area preceeded by a down candle in a downtrend.
Let's use the 787.36 - 786.77 demand area as an example. I opened the screen shot to see the area so as to describe the area and the potential long trades better from the picture. There is a small area of peak demand at 786.77 and also a breakout area at 787.36. This means there could potentially be a trade near the 787.36 breakout line and another near the 786.77 peak demand area as well. Since after we based for a period of time on 12-22-06 between 785.50 and 787.36 we then went higher, there were
more buyers than sellers at that 787.36 level and therefore an imbalance in the supply demand equasion. The number of sellers dropped to zero at 787.37. That can be the only logical explaination for why prices traded higher.
It stands to reason that there will be willing buyers left behind wanting to buy when price trades there in the future. I don't use MP and a volume indicator to determine that. I just use the candles. That big candle tells me there was a lot of demand at that price.
"And how do you determine the low/high zone where to place your stop when you go long on peak demand area or short on peak supply area? "
To determine where to place a stop loss, I look at the size of the area where supply and demand was in balance before the move higher and place a stop loss below the low of the area for a long. For a short near supply, I place
the stop above the high of the consolidation area. I make the entry with either a limit order at the price where the imbalance occured if the area is peak demand, or a buy or sell stop if the area is not peak, or if it is a breakout of a trading range that formed after a sell off.
" How do you make the entry? When momentum reverses in the opposite direction. Say, when and if it hits 787.6, do I wait for the next bar to go higher than the previous bar to go long? "
Let's separate the two possible trades in the picture.
I re-read my post from Sunday and looked at the picture and I amended the 787.60 price to 786.77 for the area of peak demand. I will use a limit order at 786.80 and my initial stop loss will be 785.40 for that trade.
It is very possible that the price will turn higher when it hits the 787.36 breakout line. I will place a buy stop at 787.50 or 787.60 if that line is hit to catch the reversal and I will watch the tape for buyers.
"The other question is, from last Friday's MP, I see a P shape, so this means that 792 is not absorbed yet but it's no longer peak demand area correct? "
Correct. It is not absorbed until price closes below the 792 area on the 60 minute chart and it is not peak anymore.
"Since we don't know what Wednesday's MP shape will be, we expect Wednesday to be in 792-799 action seeing Friday's MP shape?"
There is no way to determine the shape of the Wednesday Profile from Friday's. If the price trades between 792 for the low and 799 for the high, it could be a normal profile if the price rotates in the middle of the range, or a P shape if the price hangs out near the 799 area of supply, or a B shape if the price returns to the low of the day and rotates there.