Measuring supply and demand

Discussion in 'Trading' started by Joeboy, Aug 10, 2003.

  1. Joeboy


    Everyone says just watch supply and demand.
    My question is, what or how can anyone measure it besides watching price?
    No one seems to elaborate on it much. I'd be really impressed if I really could see supply an demand, in some other form.
    "Show me the supply n demand,,please"
  2. There is a way to measure supply and demand - it's support and resistance. Click on my homepage for examples.
  3. with my first cut at this as you were requesting a look at supply and demand that is not price-based. Even though a Level II screen does show quantities at various price levels it isn't based solely on the supply of and demand for stock shares, just on what is currently being traded in the market. To get a look at the supply of and demand for shares of any company you need to look at three things: shares issued, shares held by institutions and insiders, and the float (shares available for public purchase). Here is an example of what I mean:

    I hope this second attempt is more in line with what you were looking to see.

  4. Supply and demand produce what everyone calls areas of resistance and support - that's the manifestation of the underlying buying/selling to look for. It happens with multiple intensity at different levels.
  5. And like other techniques of technical analysis it works just fine until it doesn't.

  6. Joeboy


    To bdixon619,,

    I liked your first post. The link was informative, but unfortunately I don't have $1300 a quarter to spend yet.
    Anyways, would it be possible for you to explain how to use the fair value numbers with the ES or NQ ?

    To Archangel,, I know all about S & R,,and MA's. I'm just looking for something more to go along with that,, but thanks!

    Oh, I don't have a PREM symbol in tradestation-7, will the $SPINX work?
  7. Joeboy,

    Supply and demand is viewed in realtime through the bid and ask size (on Nasdaq Level II or NY Open Book with a 10 sec delay). However, realize that MMs and other professional traders can easily manipulate the book to make it appear like there is buying or selling demand.

    For example, say you are trading NXTL and I'm a professional trader trading the same stock, looking at the same level II screen you are. I short 1000 shares at the start of a futures sell off. I then send in a buy to cover 9 cents down. I then send in a 5000 sell short 3 cents up from my entry price on INCA, and 3000 shares sell short 3 cents up on ISLD, and another 5000 shares 4 cents up on ARCA. As I watch the futures sell off, I don't have to worry about getting filled. What I do is create the illusion that there is a lot of supply. Panic Pete sitting in front of his computer on his Ameritrade account sees the size and sells his long. With enough people like Panic Pete, it will push the price down so I can cover 9 cents down and make a quick $90 profit. At any time if I see the futures turn up and rally, I cancel my orders with the press of a single button and I'm safe. If the futures turn before my 9 cent target, I can hit the offer from Panic Pete and buy his stock with a 5 cent profit.

    If you're trading the emini S&P's don't trust the size you see there either. There is so much program trading that submit and cancel their order that you can go nuts trying to figure out how it works. I often see that during the choppy times, price seems to gravitate towards size, not away from it. However, in trending fast markets, size seems to be an indicator of real supply and demand. That's just my observation.

    What I learned as the best indicator of supply and demand is reading the candlesticks. An individual candle can tell you 60% of what you need to know to give you a high probability bet on the next candle. Take in context the previous candles in formation and you have more information thus higher probability. I know that candles are formed as price is printed so it is a coincident indicator...sort of like reading the tape. So if you want to understand supply and demand, which ultimately drives price action, read up on candlesticks. I think you should read up on the basic and intermediate literature on candles and then form your own opinions on patterns based on what you trade as opposed to reading a book that will bias what you think should happen.

    Best of luck,
  8. Joeboy,

    Well, I wasn't actually trying to pitch HL Camp's services. Fair value is defined and its use is simply explained here:

    The symbol for the S&P 500 index is different from vendor to vendor. PREM and the symbol for the index are two entirely different price series, but they are related in that PREM is the value either above or below the index of the current futures contract. Some traders use PREM as a trading aid, noting wide or narrow departures from its reading as the futures' prices fluctuate around the index price. I have never been able to trade using PREM, however. As the current futures contract approaches its expiration date the difference between PREM and the index becomes less and less.

  9. Very primitive model I won't call supply and demand. In fact officially it doesn't exist. Only a few person GANN and ... I are pretentious enough to say they have the true supply and demand equations hee hee !

    #10     Aug 11, 2003