So often in the trading world, I hear people talk about where price is likely to turn next, where is the next key supply or demand level, where is the next big market move going to originate from, and so on. The question I hardly ever hear anyone asking is, “where is the next big profit margin (zone)?” This is one of if not the most important things to consider when speculating in markets.
The profit margin is the distance in price between the entry point and the profit target price. Another way to say that is the distance between demand and supply. When looking for trading opportunities, people tend to focus on where the next big turn in price will happen. As I often write about, these turns happen at price levels where supply and demand is out of balance. When looking at charts, you will find that there are many supply and demand levels. By no means are we interested in taking trading opportunities at all the levels we find. In fact, when considering profit margin into the filtering mix, we would ignore most of the supply and demand levels we find and narrow our focus down to the supply and demand levels that have large profit margins associated with them.
Figure 1
To explain the concept of profit margin and its importance in trading, let’s take a… Continue Reading
