Supply and Demand
We have all heard the pundits in the money section of our news programs telling us that this market or that market, has gone up, down or sideways, for some specific reason or another.
?The price of oil has gone up and the stock market has fallen.? for example.
Of course, at another time the price of oil will rise and the stock market will rise too - but nobody ever seems willing to explain this apparent dichotomy. The simple truth is that nobody really knows why news may have caused the markets to move in one direction or another. News doesn't actually drive the markets, it follows it.
Prices are driven by supply and demand. When demand is strong and supply is limited prices rise. When demand is weak, or supply is excessive, prices will head lower. If demand is strong and the news is, bad prices may still move lower ? but the market will react less strongly than if the demand had been weak or there was too much supply. The market may even rise despite the worst possible news.
The key to trading successfully is to determine the balance of supply and demand in the market.
Many good traders have a sense of this without even trying ? there are ?natural' traders who always seem to be on the right side of the market, but if you are not able to do this instinctively you can learn to do it through Volume Spread Analysis ? and you will be amazed at how much you will learn in a short time.
The VSA methods are explained in detail in Tom's book, ?Undeclared Secrets That Drive The Markets?, which accompanies our programs.
End of a Rising Market - A Simple Example
Let us assume that the stock market has been in a bull move for many months and everybody is keen to climb on the bandwagon. The news is good, any of your friends have made good money in stocks, and all the pundits in the press and on TV are predicting higher prices.
The professional money in the market however, has other ideas. |
