Testing Supply & Demand - Time the Breakouts! transcript

two guys hey y'all what's going on this is Andrew from the options military Community today we're going to be continuing the series from the complete guide to volume price analysis book by Anna culling fantastic book fantastic resources if you haven't already go back and look at the first two videos from the series that I'll be doing you can find those in the educational series playlist before we get started if you haven't already hit that like button and subscribe become a part of a great educational Community not only do you get notifications for all future content but you also get notifications for a Monday Wednesday Friday live streams and during those streams we do a little bit of live option trading and a lot of Education to help you be a more profitable and consistent Trader over the Long Haul so in the last video we kind of went over chapter five of the vpa book which goes over accumulation and distribution we're going to be building on exactly that and kind of going over how they elect to transfer the price action from accumulation to distribution and that's through testing supply and demand as I'm sure you already know 2022 has been a very tumultuous Market we have dropped all the way from 4 800 all the way down as of today 36 22 36 13. it's been a very violent bear Market probably more violent than most people have seen in their entire trading career certainly the most violent since 2008 and just looking at the price action you can see what makes bear market so difficult to trade it's not as simple as putting on a put and riding it out for months and months and months just because the price action is going down because intertwined with the bear Market the big sell-off are multiple very strong very violent bear Market rallies in order to navigate successfully this type of Market you have to know when to buy when to sell when to go long puts when to go long calls when to close out those positions and obviously there's no real way to know exactly when that's going to happen however the number one tool we have to figure out what the institutions and dealers are doing is volume so before we go down this rabbit hole for one moment I want you to take off your retail trading hat and put on your institution hat I want you to think like an institution with billions of dollars of liquidity what are their intentions what are they looking to do they're looking to drive the market to a Target point and then load their shares and then move it back up to another Target point so they could distribute or sell those shares on to other people other institutions or retail traders to counter the market against emotions to against fear mainly to move the market in the most efficient way possible so knowing this we can start applying that lens to 2022 2022 obviously has a lot of accumulation distribution phases repeated over and over again obviously back in January we moved all the way down to 3600 and here we are actually here in September after another sell-off campaign into accumulation dropping from 4 300 down to 3 600. so applying what we already know about accumulation distribution now that they've driven the market lower the question everybody is asking right now is are we going to continue to follow or are we going to bounce back up well let's assume after one two three four five days of consolidation and then Friday we drove a little bit lower that they are ready to build the market back up let's say this is low enough and they're ready to build it back up just theoretically speaking before they do that they need to ensure that the market is ready to move higher at least on a temporary scale not maybe all the way up to new all-time Highs but maybe you're a little refresh back up to 3900 or something or even 3 800. they need to see that the market is ready to move back higher so they can distribute those shares back down well they do that through testing supply Supply is going to be above demand is going to be a blow and they're going to test the market back up ever so gently after a very fear-induced move to bring the market higher to see if they can actually break through Supply and head back up now the problem is when they do begin to move it back up right here into Supply which is roughly about right here that is an area that was Prior heavy selling action you see here we tested boom We flushed it on down and now we're below so in order to see if the market is ready to move back higher we have to bring the market back up and test this level and see what kind of volume keyword there enters the market or doesn't end in the market when we get to this level so they'll bounce the market back up they'll bring it up and they'll look for a test of the supply when we hit this test level they'll be looking for an influx of cell volume if there is an influx of cell volume then you could bet that the market the price will move right bottom back down and that test have been failed it's called a high volume test they do not want the market to show an incredibly High spike in cell volume because that just says that the market is not ready to move up higher there's too many sellers in this market and they may need to mark this Market lower or bring it back down to test demand again to just to ensure that they're going to get all the selling action on the market they're going to remove all the sellers from the market and that's their deal it's a strip all of the sellers from this market so they can efficiently move the market back up so obviously uh what is on the 20th of September we had that test here high volume the buyers did step in but there were still a lot of sellers there obviously that rejected it on back down if you saw our analysis we called this analysis Perfect all throughout the week because of this this exact cycle and now of course Friday due to the JPMorgan collar do a lot of global political events that were happening they drove the market to new lows down to 3601 so obviously that first test failed and now we're coming up on another test at the bottom here to see if they're going to take us out so in the event that they bounce this thing back up we'll have another test here of supply and then once again we'll be looking for another volume test if they have another influx of cell volume another high selloff back down then once obviously the market is not ready to move higher what they're looking for is what's called a low volume test and they come up here they move the market back up and let's say they finally come up to supply roughly 3 700 37.35 and we have a nice bottom Wick the green candle under low sell volume what we're looking for is a kind of anti-climatic breach of this level that just kind of all right well we're testing it's here kind of the testing testing testing pinned here and then boom which is kind of Mosey on through that level with no big spike in cell volume and now it's just buyers and now it's now they know it's time to start pricing this Market higher and then they start bidding the market up now they have to do this little by little by little they can't just start smashing the institutional bids to bid this market up because obviously the market will know that hey something's going on here the market will move up too fast too soon soon and it'll scare all the people out of the market so they have to do it little by little they have to they have to entice people the retail traders who are once incredibly fearful worlds on fire Twitter is burning we're going all the heck and now they need to entice those people back into the market to bid this market up so they go little by little and now people start to like all right well all right tensions are eased a little bit people are easing they bid this Market back up they just mark it back up a little bit all right so now we're consolidating maybe a little bit of retracement coming back up and now they can start getting people on board and now they have to start creating willing buyers and once they get high enough they have those willing buyers now they can start to trap those buyers that's when they start to distribute their shares somewhere up there which we don't know where it is that's their target they start to distribute those shares onto retail Traders they start to dump those shares onto retail Traders and then enter into the distribution phase which most of that occurs at the top of the range which is their Target price the problem with retail Traders is that they are always driven by fear fear of losing more money on the way down fear of missing out on the way up and it caused them to jump into position the second part of retail Trader and this is precisely why I told you how to take off your retail cap and put on your institution cap is because the youth the retail Traders usually wait way too long to enter calls they start they wait way too long to start going along on the market the mountain Market bounces it comes all the way back up let's use the prior example we have a big fear-induced sell in June the market bids back up after some consolidation and testing supply finally breaks out into distribution people start going long up here Twitter starts getting very bullish up here not here the institutions have already marked this Market higher people start all right well hey we're new all-time highs the bear Market's over we're going to all-time highs and then they start buying up here and now we have all these trap buyers and the second we reach their Target price they start to massively distribute shares and then down we go and now we're providing trapped buyers now the fear is twice as much because not only do we have them the declining market conditions as presented by the media but now you've got trap buyers who are going to sell those shares back off so watch for the volume spikes watch for the tests of Supply in these particular examples the there are times to trade heavy there are times to trade light in my opinion trading the consolidation areas like this this up here trading these flags you have to play light you have to play small and you have to put stops on because this is where they're going to do the max manipulation at these consolidation areas this is where they're going to shape the purpose here the whole purpose is to manipulate and shake out the buyers the whole purpose here is to manipulate and check out the sellers so they could buy low and distribute High that's the whole purpose of these consolidation ShakeOut phases so in these areas this is where people get chopped up not on these areas in my opinion but these areas because they continue to try to go long and they get blown up they continue to try to go along here they get blown up they continue to try to short here and bounces in and get blown up so on and so forth that's the whole ShakeOut phase so in my opinion play light place them on the consolidation and then let it fly on the trend moves now I want to show you a great example of testing supply breaking out and entering into a bullish distribution Trend so obviously back in June we had this crazy crazy sellout 4170 4 all the way down to 46 36 41. this is when I by the way I had that 1500 game it's fantastic I remember that but you see we did consolidate for what one two three four five six seven days where we kind of had some red red green red green red green back and forth bouncing off uh demand rejecting Supply but look we finally bounced off that final demand a lot of high volume coming in as we shake out people we start to bring the market higher and look here's that little test back up into Supply the volume dropped off a little more but look at the next day there's that big flush through all that Supply look the lowest candle nearly that we had almost all year it's like the second or third lowest volume candle we had all year why zero sellers in this market the bar that that tells us that the market is now void of any big institutional selling that's going to have appetite to bring us lower and we price the market higher now we do have some profit taking after that come off down but look now we're using the prior Supply as demand now the buyers are sitting here defending this level as they do not have any more appetite to bring this Market lower we bounce back off we consolidate and then finally break higher and then of course you all remember what happened in July and August we rallied up to about 4 300 providing a lot of liquidity to the upside on their buyer's market so perfect example is that when we finally break through Supply which is I would say roughly you know right about here the lowest volume candle of the Year almost uh second or third lowest volume breaks out and that shows us that there's no more sellers remain in this market and off we go now I want to show you an example of a failed Supply test or a big high volume failed Supply test this is a perfect example so back in March we came on down we had this nice little sell-off which remember back in March we were still kind of wide-eyed and bushy-tailed we were believing that this was going to go to all-time highs thing fell down here we enter one two three four five days of consolidation right in this area April 24th or April 14th and now they finally bounce off demand again we start to move up higher we get this increase in volume here on the buy volume which indicates all right well there's still some volume in this market we come up with top Wick not a good sign if you're a bull and they look at the next day the following day we finally get into Supply what happens immediately when we break into Supply look at that candle right there come on down to this candle huge uptick in volume of the highest volume we've had in a couple of weeks and then look what they do they flush that market on down and because that market that tells us because of their influx of volume here the cell volume that tells us that the market is not ready to go higher so I have to mark the market lower in this case we wipe out the previous demand and we flush it lower to enter a new consolidation area down here so if you are looking for the testing to supply AI if you're looking for confirmation on a trend then you don't need to wait any more than this candle wait for this candle of the break into Supply and see what happens after that you're ready to make your move so if this finish if this candle finished green with a bottom Wick with low volume I'd be looking to go long calls two to three week dated calls give or take some aggressive yet realistic strikes on those calls but right here obviously with this downside now it's time to start scalping puts to the downside or even take a closer dated put for a quick volatile move back down but that's pretty much how you identify you identify when we break into Supply on the upside look for the volume and see how the market responds once we're in that Supply zone until then in the consolidation phases you have to play light you have to play careful because that's the ShakeOut phase only when we enter a trend and for the confirmation of volume do start taking on the swing trades in this market now what is the reason why I told you to take off your retail trading cap and put on your institution hat it's because retail one of the inherent flaws of the retail Trader is that they won they wait too long for confirmation which means they don't wait they wait till take calls until up at the top or take puts at the bottom and two they are driven by fear either fear of losing more money or fear of missing out if you go look on Twitter the sentiment shift on Twitter or across any social media platform for that matter lags way too long the general population of retail Traders and in social media becomes bullish way too late in the cycle and bearish way too late in the cycle sure there are going to be some people that are bullish way at the bottom there's going to be some people that are bearish at the top but general population of retail investors they like to wait too long all right hey things are bouncing hey looks pretty good oh okay oh oh now I'm bullish let's smash calls baby calls baby oh things are great all to the Moon bam smashed or the other way around all right hey things are good so we're still going up higher things are great now it's a little retracement okay all right now the world's ending now we're getting fearful time to buy puts baby long puts 3 400 and enter puts and Bam we get bounced that's the way things work they wait too long for confirmation it's that kind of human mentality where it's the hot hand Theory we think the Market's selling off so it's going to continue to sell off the Market's bouncing so it's going to continue to bounce that type of thing so the institutions play against that and there's a great quote in the vpa book that says buy when most people including experts are pessimistic and sell when they are actively optimistic because that means that the market is about to counter those emotions and drive the market in the direction that they intend to their Target price so that's a little bit about testing supply and that drives home two things so far that we've learned in this chapter 5 EPA cycle is that you've got accumulation of distribution and then how they test out of accumulation and distribution in the next video we're going to be talking a little bit about how to identify their targets once they do break out once they test Supply or demand and break out or break down what Target are they going to go to obviously that's a little bit more experience in science but we are going to talk a little bit on the next video so I hope you all enjoyed this video let me know if you have any questions down in the description of this video hit that like and follow button so you get notifications for all future content as well is our Monday Wednesday Friday live streams if you're not already come down and join the Discord the best educational server out there we talk a lot about education we go over volume price analysis on the daily every day if you don't already know I've got a great podcast on Spotify called making millionaires we discuss everything from emotional trading to navigating your personal finances life and everything in between and as always I'm Andrew with the options of millionaire Community until next time stay safe stay profitable I'm out see ya [Music]