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In my several years of trading I’ve listen to several thoughts on the stock market. I’ve listened to professionals as well as amateurs just to get a glimpse of their point of view.
What I’ve learned through my observations was the lack of knowledge they had on the overall market. Most professionals were right on point, amateurs and the rest simply had no idea. If you’re going to play the stock market it is essential you understand its mechanics.
This post was written to guide you through this, understand it’s lessons and you will do well.
Facts Vs. Opinions
One of the biggest mistakes people make is thinking the stock market is based on facts. To some extent this is true but for the most part its base on opinions.
When a stock price move up or down this is a battle between opinions.
For instance, on one end a group may think a stock is over price and start to over sell causing the stock to move downward while on the other end a group may think the stock is a bargain and start to over buy causing the stock to move up.
What determines the direction of a stock is which opinions is stronger. If ever opinions came to a stalemate the stock will simply move sideways.
Emotions triggers price movement
As humans we are often labeled to be very emotional. Since people are the ones putting orders for stocks you don’t need a finance degree to know it’s an emotional arena.
Because price are exploding with emotions professionals never invest without insurance. As a trader the only emotions you can be accounted for is yourself so you’ve better invest with insurance.
Supply and Demand
By now most of you have heard the law of supply and demand.
The law states if there’s a low supply and high demand price will rise. In contrast, if there’s a high supply and the low demand, prices should fall, well in the stock market the same rules apply.
In the world of stock investing, the law of supply and demand is what determine price. This means if you really wanted to know the next direction of a stock all you have to do is locate its true supply (resistance) and its true demand (support) and find the imbalance between them.
Below is a screen shot of our ELT (extended learning track) at online trading academy on supply and demand.
You can see we’ve located demand (a buy entry point) and we’ve located supply (a sell exit point) on the chart.
To be a successful trader it is important you understand that the market runs on supply and demand. Traders who ignores these rules usually experience consistent loses then turn around and blame the market.
Demand buying entry. Resistance exit entry to go short
Demand price level entry. Supply shorting opportunity
Who took your money?
Most people think when they lose money in the stock market that the stock market took their money. While there are indeed corruption in the stock market the truth of the matter is someone smarter than you took your market.
In trading it is important to remember for every buy order there is a sell order. What this mean is for each trade you put there is another person betting against you that you can’t see.
The reason you want to learn technical analysis is to get a glimpse of what retailers, banks, and institutions are doing. By knowing this piece of information not only will you increase your olds of winning but you’ll see what others don’t see.
As always please don’t forget to subscribe. Hope this helped.
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