Support and resistance as confirmation of supply and demand in futures trading

Trading supply and demand is one of the many strategies futures traders use in hopes of gaining an edge. In the recent NinjaTrader Ecosystem webinar, “Trading Supply and Demand Imbalances,” presenter Will Busby from Pure Financial Academy referenced the potential advantage combining several strategies can deliver for traders.

There are different types of supply and demand patterns but these often carry additional questions:

• Locating demand at resistance is an interesting concept, but how does one quantify then validate this information?
• There are supply and demand levels all over the map, so how do you know what you’re looking for?

Based on Busby’s trading experience – and reinforced by virtually all traders – no one single strategy works 100% of the time.

Supply and demand plus pattern recognition

When you consider trading on a dynamic scale with volatility constantly changing, strategies outside of supply and demand are necessary. Learning to recognize patterns (whether they be support and resistance, Fibonacci, etc.) can supplement a supply and demand strategy and allow an engaged trader to determine when supply is significant or to locate demand at resistance.

That’s where, as Busby puts it, the trader “finds the battle.”

“We need to see the fight take place, and furthermore, we need to see who wins that fight. We don’t want to dive into the fight before we see who is going to win,” he explained.

He compared supply and demand trading to a boxing match where both competitors are evenly matched. The trader will need to see more data and have more information before picking a potential ‘winner.’ Locating demand at resistance levels helps to quantify that so when that resistance is taken out, we can conclude the buyers have won the battle.

Conversely, when trading on supply, one must look at support levels. You should always be looking at what’s opposing. When there is a departure breaking through the support level, traders can conclude the sellers are stronger than the buyers.

To learn more, watch Will Busby’s full presentation available for free in our archives now. If you are interested in more futures trading tips, be sure to explore our full library of free archived presentations available for on-demand viewing in our Video Library. New events occur weekly, so be sure to keep an eye on our Upcoming Webinars Page as well. You can view a full schedule of upcoming events there and register to attend live (for free)!