Avoid the Price Booby Traps by Watching Supply and Demand

Two-Step Charlie. The nickname for one of the several snakes in the jungles of Vietnam. Rumor had it that after being bitten by one of these highly venomous snakes, you would likely die within two steps.

These deadly serpents were placed in weapons crates to attack advancing American soldiers who uncovered the hidden cache. They were also nailed in doorways and in tree branches to swing down and bite anyone that passed through or under.

When buyers and sellers are at war, price can swing in wildly and bite you without warning from any direction. Thankfully, you can analyze and plot long-term supply and demand to steer clear of booby traps that are nothing more than market chop.

Traps in the market that maim your account

Among the outcomes that could befall a GI roaming the jungle during the Vietnam conflict, the booby trap was among the most feared. There were five or so traps that were considered the most common — all of which involved something that would leave you maimed or dead.

In the market, especially when there’s a heated conflict between buyers and sellers, traps are laid every day. They take the form of big price swings once one side starts to overrun the other.

The moment there’s a pause, retail traders jump in, believing they’re catching a reversal. More often than not, they are crushed as price just continues to roll. Without historical context that comes with knowing where supply and demand has offered support or resistance, these losing trades will continue to pile up.

Before you disarm price traps — respect the trip wire

As much as 80% of the casualties incurred during the conflict came from mines and booby traps. Part of the issue was that new recruits, specifically replacements, understand the severity of the risk. Naturally, detection became a valuable commodity.

When price is on the attack, volume is heated and buyers (or sellers) are shooting through your standard support and resistance layers — watch supply and demand. These zones reflect support and resistance performance over long periods of time.

Trade with supply and demand zones and step around the booby traps laid by price!

As price approaches one of these zones, there are a handful of details you should keep an eye on:

  • Triggered or Untriggered: The lighter shades reflect zones that have already been triggered — and, to a certain extent, verified. The darker zones have yet to be triggered.
  • Depth: The wider the zone, the more flexibility price will have for a reversal / pivot point.
  • Entry: The entry price for entering the zone is clearly marked — but also is something that you’ll want to compare with the value zone overall.

When price heads toward these zones, you have an opportunity to enter the fray.

Advancing entries in the face of dangerous price conditions

One of the first indications soldiers were told to keep an eye on was the behavior of villagers. Especially mothers with children. If children were playing with plenty of apparent room to roam around — odds were good that you were in a safe area. If the kiddos were tucked in close, keep your head on a swivel — there could be trouble.

When buyers or sellers make their move and start overrunning the other side, it can be difficult to spot exactly when, where, or even if you should make your entry. Consider the supply and demand zones the guarded playground for reversals — with one caveat: you don’t want your entries to roam around.

Ideally, you’ll have a zone that’s a few ticks deep so there’s a margin to let price tag you. This is important, because you don’t want a wide zone where price can jog around. But you also want room to incorporate another indicator with Order Flow Sequence Tracking intelligence — specifically volume rejection and / or responsive activity coupled with sequential decline.

When both of those ingredients come into view within a zone — you have your formula for a high probability entry.

How can you use long-term perspective to disarm the same old traps?

If you’ve been burned in the past, zones may be a difficult entry concept to accept. Especially if you’ve dealt with seemingly ideal reversal conditions that really just turned out to be a pit stop in price’s race for another level.

Keep in mind that short-term pricing movement — however volatile — has a way of respecting long-term levels. This fact is often ignored by millions of retail traders who keep their fingers poised over their mouse waiting for a price-based indicator to tell them what to do.

These indicators almost always fall for short-lived pauses in price runs because they fail to factor the long-term perspective of volume that drives supply and demand. Many a trading career has been, and can be, turned around — simply by factoring in a long-term view of volume — which price respects.

Side-step casualty like trades for glorious profits

Given the limited resources of the Viet Cong, booby traps were an effective way to both harm and demoralize American troops. Designed not just to inflict pain and / or kill — they were designed to send a message that would surely stay with anyone that passed by.

During periods of market volatility, price can turn on you in a second, chasing after new levels like a falling spike. You can either get caught, or monitor Supply and Demand conditions to profit.

Simply keep an eye on the Supply and Demand zones market on your chart. If you’re heading towards a previously triggered zone — wait until you get there before making your entry. The narrower the zone the better, since wide zones will require more patience in waiting out an entry.

As price advances, deftly step to the side, wait for the reversal, and then enter. Use Order Flow Sequence Tracking as your confirmation for final entry and exit conditions.

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