Candlestick Trading Blog
Trading supply and demand has to do with fundamentals of the individual stocks, options markets, commodities, and futures of the equity market. Technical trading has to do with anticipating the actions of others in the market. An understanding of trading supply and demand is important in commodities trading, options trading, trading stocks, and trading futures of all kinds. Fundamental commodity analysis tells traders dealing in corn futures and other agricultural products how much will be produced and how effectively it will be brought to market. Likewise, looking at the fundamentals of consumption will tell the trader what the demand will be. When supply overshadows demand commodity prices will drop and when demand overshadows supply commodity prices will go up.
Likewise, fundamental analysis of the stock of a rapidly growing company will tell the trader that the demand (how many want to buy the stock) will, at least temporarily, outstrip supply (how many are willing to sell) at the current market price. Thus the stock price will rise until demand and supply even out. Trading supply and demand is what works for long term investing. Understanding that the world has an insatiable demand for useful computer software made fortunes for those who had the foresight to invest in Microsoft in its early days. Understanding that the computer software giant has largely satisfied demand and is now just upgrading tells us that supply and demand are about equal which could would explain the price stagnation that plagues the company. Doing fundamental and technical analysis of stock with a very stable price is not very profitable. Understanding trading supply and demand, the fundamentals, will tell the trader when to go looking elsewhere for a profitable equity to trade. Traders in gold futures typically look at the seemingly perpetual slide of the American dollar as a good reason to buy gold. The dollar goes down and gold goes up is the trader’s mantra. Trading supply and demand in gold gives us a broader picture. Most of the easy to reach gold (near the surface) in North American, South Africa, and other long term gold producing areas has been mined. That means a lower supply. As mining operations work farther and farther beneath the surface the price of mining goes up along with the price of gold. If one is trading gold stocks then reduced, easy to mine, supply will mean lower profits and a lower stock price. As mining companies are forced to explore for and extract gold in politically unstable third world countries the price of delivering gold bullion to the market is also increased at the same time that India and China are buying gold at historic highs (high demand). Trading supply and demand is taking the long term view and helps the trader understand long term market trends. Daily market fluctuations are more strongly affected by the actions of many traders and are more easily and accurately predicted by technical analysis tools such as Candlestick charting and Candlestick pattern formations. In shorter term trend trading the fundamentals of supply and demand will help the trader understand where the limits will lie in any market rally or market decline.Online Stock Market Reviews presented live via the internet by Stephen Bigalow |
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