T2W Bot

Staff member
1,473 70
Recently I showed some students a chart of the XLF which is the ETF for the financial service sector. I showed a demand (support) level and suggested this would be a low risk area to buy the XLF for a bounce, not a long term trade. After receiving many questions on this trading opportunity from people who bought the XLF as planned and from those who didn’t, I thought it would be a good idea to revisit the chart as the questions in the emails were all the same.
As you can see below, price in the XLF touched our level on 10th January 2008. For those who bought it then, the trade had a gain of $2.00 in the past two days, congrats. You can certainly move your stop to breakeven at this point and consider exiting some or all of the position at or near the circled area seen on the chart as that represents some supply (resistance). Keep in mind that while the gain is nice, the low risk entry taken to get that gain is the key point in this trade that needs to be understood. Obtaining gains...
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timsk

Legendary member
7,336 2,122
Poor article.
Mr. Seiden has a very strange view about the demand / supply relationship. His graphic showing green buyers (demand) and red sellers (supply) implies that all a trader has to do is wait for price to drop really low and there will be huge demand, with queues of willing buyers who will push price higher. Not so, it just doesn't follow that because price is low, demand will come in and cause it to rise. Conversely, it doesn't follow that when price is high, supply will come in and cause it to fall. It's this sort of simplistic thinking that saw traders and investors buying Northern Rock as it waterfalled from £12 down to £1 last year. An abundance of supply doesn't necessarily create huge demand or, in the case of NRK - any demand at all.
Tim.
 

fibonelli

Experienced member
1,338 288
The idea of a prior major equilibrium zone acting as a launch pad for a major upswing or downswing is another good method that traders can use to ascertain the most likely zones of support (demand) and resistance (supply).

Admittedly the above chart is probably not the best example to illustrate this idea as it showed a (potentially risky) counter trend trade.

In the event the setup was successful in view of the large hammer type candle print. But, I don't believe the example is ideal one to illustrate this method in the light of the 5 year gap, the steep fall from 38, the clear downtrend and of price falling below several support (demand) levels after failed rallies to old support (demand) levels.
 
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