TOM WILLIAMS How to Identify Lack of Demand `Lack of demand' is one of the most common indications you will see and it is pretty easy to pick out. Basically, you will be watching out for a low volume up-bar, on a narrow spread, such as the one identified by TradeGuider in the chart below. Chart 4: No demand (chart courtesy of TradeGuider) If, over the next few bars or more, the price closes down, on declining volume, with narrow spreads, then this indicates that there is no selling pressure. In this case, we have observed some temporary weakness, which has now been overcome the up-move may now continue. Whilst reading a chart, try to keep in mind that most people fail to link human behaviour (in this case, of professional traders) with the price spreads and the volume, but would rather believe the mass of incoming 'news', which inevitably differs from what supply and demand is telling you. Master the Markets 32 Chart 5: Market goes flat on No demand (chart courtesy of TradeGuider) It is the lack of demand from professional money that causes a market to roll over at the tops, resulting in the characteristic mushroom shape. You will not notice this weakness because the news will still be good. The chart above shows a market that is completely devoid of professional support. All the Xs on the chart show narrow spread bars that are closing higher than the previous bar, on low volume. There is absolutely no way a market can rally up through an old trading top, and into fresh new ground on this lack of demand. Do not view lack of demand in isolation try to take a holistic view when reading the market. You should always look to the background. What are the previous bars telling you? If you have the TradeGuider software, this will help you to become a better trader by teaching you how to read the markets. In time, you will become more proficient at market analysis, such that you may even decide to trade `blind', to test your skills without the supply and demand indicators built into the software. For now, remember that we need confirmation before shorting the market following any sign of no demand. There are many confirming indicators built into the software, but suffice to say that this sometimes appears as a narrow spread up-bar on greatly increased volume. In this instance, professional traders have started to transfer stock to eager uninformed (or misinformed!) buyers. Prices are being kept low to encourage buying, which accounts for the narrow spread. These traders are completely unaware of the implications of volume activity and are probably buying on repeated `good news`.
