How To Find Zones Of Supply And Demand When Trading
Our strategy is really a very simple one, it all comes down to price. Not much in the way of fancy indicators or oscillators, not even too much to do with volume either. It all comes down to price.
As you can see in today’s example with Acadia Healthcare (ACHC), price is really all we need to look at in order to find our roadmap of the market. I call it the roadmap because once you start to find meaningful levels and draw your trend lines, you begin to literally map out the market and what areas could cause price to react.
And no this is some type of voodoo or magic, the stock’s chart and price action throughout the past will tell you where pockets of supply and demand are, allowing you to reasonably assume where price will again react in such a way.
Zones with unfilled sell orders are referred to as supply. These are areas usually higher in price where limit sells are set to trigger if the price again reaches that zone. These are often large orders set by the institutional traders or “the big boys” who have the size to actually move the market. The opposite is true for demand zones. These are zones where large buy orders are waiting to be triggered.
If you can map out these zones accurately then you are already ahead of the retail pack. Mapping out the market is exactly our strategy.
As you can see with ACHC, that area just below 67.5 is a strong area of support and from 67 to 63.2 could be looked at as our demand zone. As you can tell, the price of ACHC has reacted to this level quite a few times in the recent past, giving us single to pay attention to it.
Initially, you may be thinking calls off this level would be a good idea, however, the more a price tests a level, the weaker that level becomes. There is also the overall trend of the stock that could lead to an invalidation of this level. The stock is falling why the market is trending upward, led mostly by the tech sector. Map out this stock and keep an eye on a break of 67.5 and a hold below for testing puts.
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