Where price will turn next is everybody’s question and focus and that’s not a bad thing. The challenge and opportunity is about the question I hardly ever hear, Where will price go? This is one of, if not the most important things to consider when putting your hard-earned money at risk in markets. Let’s look at a recent trade I set up in our live trading room to illustrate the importance of the second question.

Where will price go we will call the Profit Zone. The profit zone is the distance in price between the entry point and the profit target price. Another way to say that is the distance between demand and supply. When looking for trading opportunities, people tend to focus on where the next big turn in price will happen.

These turns happen at price levels where supply and demand are out of balance. When looking at charts, you will find that there are many supply and demand levels. By no means are we interested in taking trading opportunities at all the levels we find. We only want to focus on big supply and demand imbalances, where banks and financial institutions are buying and selling. Our odds enhancers help us find these quality levels. When considering profit zone, we would ignore most of the supply and demand levels we find and narrow our focus down to the supply and demand levels that have large profit zones associated with them.

Sam Seiden – Live Trading Room: Gold Trade: 6/18/18

To explain the concept of profit zone and its importance in trading, let’s take a look at the trade above from the other day, a shorting opportunity in Gold. Notice the supply level above. This is where we expected there to be more supply than demand, where banks were heavy sellers of Gold. The distance between the supply zone and the demand zone below is the profit zone. The blue line was the profit target.

Notice the price action between the supply zone and the blue line. That price action represents filled orders, meaning that price will have a very easy time moving through that level once we enter our position. In other words, there are no fresh demand zones to stop price from moving through that area. The trading opportunity was to sell short at the supply level above (circle at supply) and profit from a move down through that area below the supply zone to the blue line.