How to trade supply & demand (important for earnings week)

2020年10月26日

This is gonna be a brief rundown of how supply & demand can be leveraged in order to trade through earnings week & get crazy profits (notably like SNAP)

First : What is supply & demand?

If you've ever learned basic economics supply & demand is what makes prices of commodities, products or services change and fluctuate. This is also applicable within the stock market. Where when supply exceeds demand the price falls & when demand exceeds supply the price rises. This is why finding zones that reflect these changes will make your trading easier as well as give you highly profitable R:R trades with (if done properly) a near 80-85% success rate.

Secondly : When done right it'll feel like you're cheating and its the best feeling in the world

How do we find these zones & what do they exactly mean?


These zones are where there are imbalances between the amount of people wanting to buy the stock or commodity and the amount of people who want to sell it. These are found by looking for a balanced period on the chart with a strong reaction following it. This can be done on many time frames & there is an example that I have added to this post using AGNC which had earnings after the bell & is a perfect example of the power of this type of trading.

Think of these zones as places where there are 100,000s of thousands of buy or sell orders waiting to be filled by the big players who know what will happen before it happens (such as stimulus news, earnings or surprise news)

Now to AGNC

1) Consolidation / Balance period
These can be found through just looking at where price has balanced out, traded within a range & then had a strong reaction in either direction. The bigger & more green candles there are the stronger this zone is and the higher the chance of the trade working becomes.

The zone I have marked on AGNC was created on the 4hr chart & was also very visible on the 1hr chart. Keep in mind earnings was after the bell 3 days from price leaving this zone.


2) A strong move upward

As said previously there is a consolidation & a move up or down. In this example the move is upward

This move upward tells us that there are now a ton of buy or sell orders sitting within that zone because price moves due to having an imbalance. This gives us the confidence of price rejecting this zone again & being a good trade backed by the big "smart money" boys.

3) A return to the zone

Pretty simple, price moves between supply & demand and it will return to these zones more likely than not, this is where you set up your trade.

4) Reaction #2
This is where we get into our trade. You will take the low of the supply / demand zone (consolidation low) and the high of the supply / demand zone. This is the area you will be looking to trade +- a couple cents.
The stop loss will go under the zone by a couple cents just to keep us in trades where volatility can throw the price much lower than it should be going. & your take profit will be another supply / demand zone.

As for my target for AGNC it is a supply zone that has been used a couple times, this is important because that means that the orders sitting in this zone are not as plentiful as they were previously, this tells us that we should watch for it to break through this zone and maybe take off 50% of our capital & let the rest ride until either another supply zone or until we feel it looks 'rejecty'.

As for right now, the 14$ calls for oct 30th were trading at less than 20c within the supply zone, closed out at 25c (25% gain) and will be worth more than 44c of intrinsic value when entering our price target. This is more than 100% over night with an entry before earnings & a correct direction without any guessing or looking @ the companies actual performance.

(OUTRO) Why is this so important for earnings or any other news that you want to trade?

When you can figure out these zones, that are created by big players within the market you then are able to make the trades that they are making, with them, in REAL TIME. This is a huge advantage over any other strategy and will set you up to be positive on the day nearly 90% of days.
If you believe that big, smart money moves the market then this is how you trade with them, making this one of the most common sense ways of trading.