Basics of Market-Techniques Basically there are 3 kinds of traders in a market:
-Those who are positioned LONG – they exspect rising prices -Those who are positioned SHORT – they exspect falling prices -Those wo stand on the sideline – they are FLAT and waiting for a good entry
These three groups are responsible for the fact that a price determines, because they provide the offer and demand. From this fact there originates the important knowledge, that not news or external events make the price, but the three mentioned tradertypes .
Origin of a trend
From the knowlegde about the order book there originates again the knowlegde about forming a trend. At the moment, while the demand exceeds the supply, more buyers than sellers exist – the price will increase by the traders who are LONG positioned. In the following example, a big institution is on the buyside, that makes the price rise.
When the price has increased, one can read mostly in the press or www. Uninformed traders /newbies now take attention of the stock and also wakes interest in the share, perhaps they also buy some shares.
But what happens with the ones who are already invested and have already taken part so in the first movement?
Because their positions tend to be profitable, some of them will normally decide to take their profit and sell their shares. At this point we have on the one hand some newbies who want to buy and and the other hand many “early birds” who want to sell. In such situation we have a supply surplus. This ist he point, a HIGH appears – Such a HIGH to which we give the number “2” in the market technology originates exactly from this change.
The whole activity is observed of course still by the group no three which became attentive by the movement to the stock or has observed the market anyway. These stand still @ the sideline and are still flat. the demand is lower than the offer what leads to falling proices. The market tips and is traded down.
What happens which these traders who have bought the HIGH from those which have sold her shares up there?
As a result oft he decreased market their positions are in the deficit - the one or other will decide to close their positions. They offer their shares again and stand on the supply side in the orderbook. Now this drop other traders adopt again and buy this share to a more favorable price again after or also for the first time because they are for example orientated technically. Now more traders are ready again to buy, that means that the market will rise above the last HIGH. The traders who stood @ the sideline (flat) to find a market-technically-entrance are in the end responsible for that move. And thus the whole play continues on and on till the trend breakes.
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