Market Theory 101: Supply and Demand, Market Cycles
Okay guys I thought I'd start giving you some real information on reading price. There's ton of books on technical analysis and candle stick patterns that you could wast your time on but until you understand Market Theory, chance are they wont get you anywhere. The best way to make money trading (and simplest) is to buy and sell from amateur traders that have no clue what they are doing. Its like hunting for fresh meat. We must understand the market psychology behind the market to know where they are making huge mistakes.
Supply and Demand
First, we have to understand that the market is made up of supply and demand. If the market has a bigger demand then supply then we can expect the market to go up. Second if the market is a bigger supply then demand then we can expect the market to go down. If the market's supply= demand then we can expect price to stay in equilibrium.
Recap
If Demand greater then Supply =market goes up
If Demand less then Supply= market goes down
If Demand equals Supply = market goes sideways
Market Cycles
The market Cycles because of potential energy realized to kinetic energy through buy and sell pressure. The higher a market goes the more Potential Selling pressure it carries. When a market is very high it has 2 types of sellers. The ones in the position long are looking to take profits and you have speculators looking to go short. Just the opposite-when a market is at its lows it consists of high amounts of buying pressure from those who are short looking to cover and speculators looking to buy. The higher the markets goes the more potential buy pressure and the lower a market goes the higher amount of potential sell pressure.
http://3.bp.blogspot.com/_MKX9jzUAGx...sure+chart.png
Example-Say your in a room full of 100 people and word starts to circulate that a certian stock is poised to climb in price. A few people(the wise man) buy into it and create buy pressure for the price to increase. After seeing this you(the early adapter) buy in and so does your neighbor- The price increases a little more. Next You and the other share holders market this stock to the rest of the people who all end up eventually buying as the price screams higher due to demand and shoot ups to all time highs. Everyone(amateurs) starts to party because you are all enjoying the returns together. It starts to get quiet. Everyone looks around and notices that they all have the same stock and there's no one left to buy(maximum selling pressure).The wise sell there shares below market price to the fools(super amateurs) who were late to the party. Next everyone, follows in action selling their prices lower and lower looking for someone to buy their shares. The price plummets back its original price before anyone bought it in the first place (maximum buy pressure). Then the wise man buys it again.
Now- a market can go up for a long time before maximum selling pressure is achieved. This topic is just theory is to help understand how the market works. My next posts will be discussing how to identify supply & demand and trends on a chart so you don't get caught buying a falling knife or shorting a rocket ship.
-Eme
Blog- CrypticGains.com
Okay guys I thought I'd start giving you some real information on reading price. There's ton of books on technical analysis and candle stick patterns that you could wast your time on but until you understand Market Theory, chance are they wont get you anywhere. The best way to make money trading (and simplest) is to buy and sell from amateur traders that have no clue what they are doing. Its like hunting for fresh meat. We must understand the market psychology behind the market to know where they are making huge mistakes.
Supply and Demand
First, we have to understand that the market is made up of supply and demand. If the market has a bigger demand then supply then we can expect the market to go up. Second if the market is a bigger supply then demand then we can expect the market to go down. If the market's supply= demand then we can expect price to stay in equilibrium.
Recap
If Demand greater then Supply =market goes up
If Demand less then Supply= market goes down
If Demand equals Supply = market goes sideways
Market Cycles
The market Cycles because of potential energy realized to kinetic energy through buy and sell pressure. The higher a market goes the more Potential Selling pressure it carries. When a market is very high it has 2 types of sellers. The ones in the position long are looking to take profits and you have speculators looking to go short. Just the opposite-when a market is at its lows it consists of high amounts of buying pressure from those who are short looking to cover and speculators looking to buy. The higher the markets goes the more potential buy pressure and the lower a market goes the higher amount of potential sell pressure.
http://3.bp.blogspot.com/_MKX9jzUAGx...sure+chart.png
Example-Say your in a room full of 100 people and word starts to circulate that a certian stock is poised to climb in price. A few people(the wise man) buy into it and create buy pressure for the price to increase. After seeing this you(the early adapter) buy in and so does your neighbor- The price increases a little more. Next You and the other share holders market this stock to the rest of the people who all end up eventually buying as the price screams higher due to demand and shoot ups to all time highs. Everyone(amateurs) starts to party because you are all enjoying the returns together. It starts to get quiet. Everyone looks around and notices that they all have the same stock and there's no one left to buy(maximum selling pressure).The wise sell there shares below market price to the fools(super amateurs) who were late to the party. Next everyone, follows in action selling their prices lower and lower looking for someone to buy their shares. The price plummets back its original price before anyone bought it in the first place (maximum buy pressure). Then the wise man buys it again.
Now- a market can go up for a long time before maximum selling pressure is achieved. This topic is just theory is to help understand how the market works. My next posts will be discussing how to identify supply & demand and trends on a chart so you don't get caught buying a falling knife or shorting a rocket ship.
-Eme
Blog- CrypticGains.com
