How trading works and how we should read the market | Bid/Ask Law Part #2

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This publication is the second part of the section in my Blog called "How trading works and how we should read the market". By clicking HERE, you will find the first part which is necessary to read and observe in detail in order to study this second part. Each one has a specific sequence and if you really want to learn how to read the market, I hope you won't miss any post.

Much of what I am telling in my Blog related in great percentage with topics like trading, economy and monetary management, they get it in trading courses that are really expensive, even though I give paid trainings of it (That are not expensive at all), I want to educate the community for free through my Blog as I have already mentioned. So don't miss the content I post and get trained in this great profession once and for all.

Now, without further ado, let's continue...

The 3 fundamental laws of the market

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We have already seen how the processes of "Accumulation and Distribution" are basically carried out, which are the main phases in which the "strong hands" act to achieve their high profitability in the market. Now, we as small operators in this market, we have to learn how to detect the movements that the whales make, with the sole purpose of enjoying at least part of the journey that they take when they orchestrate their great move as soon as the market gives them the opportunity to act.

"Richard Wyckoff" in his time determined that in order to detect these great movements of the whales three fundamental laws were needed, which are:

  • The law of supply and demand
  • Law of Cause and Effect
  • Effort and Results

Now I will detail what it is and how each one works In order not to read too long in this publication, however, I will only detail the first law.

Supply and Demand Law

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I will explain it in a very simple way, basically the assets get their value depending on the market players, that is, those who buy and/or sell the asset. So, in a nutshell those people who offer (Sell) that asset (will simply be "The Offer"), those who want (Buy) that asset (will be "The Demand"). In that sense, when the demand exceeds the supply, that asset will tend to rise in price and the opposite will happen when the supply exceeds the demand, that is, the price will fall. This is basically how supply works and demand, very simple and easy to understand, there is nothing else hidden in it.

However, demand can exceed supply or vice versa in two possible scenarios which are:

  • There is a significant increase in asset trading (Volume), which causes one of these two variables to exceed the other. For example, if demand exceeds supply in a healthy trend, volume will tend to increase as well accompanying the movement.

  • On the other hand, one may outperform the other simply because one of the variables shows no interest in the asset, this would not have implications on the trading volume of the asset, but there would still be a price shift either upwards or downwards as the case may be.

So, in this sense, the whales are aware that for their manipulative movement to work, they must not present obstacles in the way, that is, if for example, strong hands want to make a profit BY BUYING, prices must go up, but for this they must buy that asset, That is, they must be made of all those who are "BIDDING" (SELLING) and must be sure that the BIDDING disappears so that the price has no obstacles to rise, thus minimizing the risk that the market will act against them and prevent price movement in their favor.

Examples:

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In the first example we will see with the DEMAND exceeds the OFFER (Click on the image to see the text written on it.)

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Now we will see how the OFFER outweighs the DEMAND (Click on the image to see the text written on it.)

Ejemplo oferta supera a la demanda.png

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This is the beginning of how to understand one of the fundamental laws we need to know in order to read the market correctly. I will leave up to here the 2nd part of this important section, in the 3rd part we will see a review of some important aspects to keep in mind that it is important not to forget and also the second Law of Cause and Effect.

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Link to the Erarium community in HIVE

Other posts of educational interest for the community:

The importance of Technical Analysis in Trading | Horizontal Supports and Resistances
The importance of Technical Analysis in Trading #2 | Mathematical Support and Resistance
Binance Trading Methods : Trading Spot/Margin/Futures
Binance Trading Methods #2 | Trading SPOT
How trading works and how we should read the market | Introduction Part 1

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5 comments
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This post has been manually curated by @bala41288 from Indiaunited community. Join us on our Discord Server.

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super interesting explanation, the very complete truth for to understand how to operate in the market.Thanks to your post I find out a little more about these things in trading, excellent!.,

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Thank you very much friend @reinaldoverdu, that is precisely what I want to achieve, publishing this kind of content, that you really understand how to operate and how it works. I hope it serves you well, soon I will be publishing new parts of the open trading sections in my blog.

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