Hart of the Market
The Power of Supply & Demand
Netflix is great for resting our brains and keeping us from watching a day trade. This week we saw a movie called “Hart of Stone” that was very entertaining. It was about a gadget named “The Hart” that has control over everything in the world. This includes all the financial markets. As traders, we sometimes believe that such an object exists. The closest object or tool that’s like The Hart would be financial information. How many times have we seen good reports and the markets drop? The answer is probably: all the time. A perfect example is Earnings Season. Walmart reported positive earnings during pre-market on August 17th. Price rallied into a supply zone and proceeded to drop into a demand zone. On August 18th, price rallied from the demand zone. This is why it is important to learn how financial markets actually work.
When the FOMC-Federal Funds Rate is published, it moves price to our zones. Many traders don’t understand that its already built in our chart. This chart of the Ten-Year Futures contract is the result of the FOMC announcement on July 26th. It is funny how they kept interest rates flat and yet price rallied to our supply zone. A quick explanation of the 10-year futures contract. When the 10-year rallies, interest rates fall. If the 10-year falls, interest rates are moving higher.
Below is an example of how price reacted after the EURO Monetary Policy Statement made on July 27th.
The supply zone was created on July 20th and price retested it at the EURO announcement. If we had no access to results of important reports, our trading may be even better.
We have provided a chart of AAPL and META. The first thing we see is price falling. For a novice trader, this means the momentum is to the downside. If novice traders did not exist institutions would have issues when buying low. Novice traders sell at the end of a downtrend and buy at the end of an uptrend. AAPL and Meta are examples of novices selling at the end of a downtrend. Ladies and gentlemen traders… This happens many times in a month.
To be a successful trader, we have to have a “Hart of Stone”-not really. We need to have discipline and patience. Supply and demand traders oversee The Hart. We oversee and confirm that it continues to work correctly every morning in The Forum. In the near future, it would be a great idea to put a list together and title it market hints. We included a couple to get the list started.
Market Hints
- Upgrades or Positive Earnings pushes price down or rallies price into supply.
- Downgrades or Negative Earnings pushes price up or drops price into demand.
