17 Jun Bars And Waves. Demand And Supply.
Point — the basic element for geometry. Trade — the basic element for Chart Reading. Each trade is a transaction that represents the meeting minds of buyers and sellers.
The connection between elements creates a more advanced structure. As connected points create lines, connected trades create waves.
Market movements consist of numerous buying and selling waves. Each wave has a duration of time, and each wave has its volume — the sum of volumes of trades inside this wave.
Every wave runs as long as it can attract followers. When this following is exhausted the wave finishes, and the opposite wave starts. Every next wave can attract more followers than the previous. The analysis of the relationships between buying and selling waves, their duration, speed, shapes, and progress gives information to conclude if the market is more bullish or bearish.
The wave doesn’t develop in a linear direction. It moves from start to finish by a series of surges. The degree of success or failure of efforts of buyers and sellers gives a clue about a possible immediate future. Browse the history and observe the numerous number of waves of different sizes and forms.
The waves build the sequence of Market auctions. The concept of market Auctions will be discussed later.
So, the structure of the market looks like:
- Elementary Trade (agreement of buyer and seller)
- Trades make Wave
- Waves make Auctions
The bar chart is the classical type of chart for Reading the Market. Historically, Chart Readers did not use candlesticks to present the data from the exchange. Bars are the way to present the process of trading. The waves live beneath the bars.
The major waves can cover multiple bars. Bars can contain multiple minor waves inside.
Thinking in waves, not bars, will help you understand the market.
The market by itself provides complete information to anticipate future action. Every substantial change in the balance of supply and demand is recorded on the chart.
The Law of Supply and Demand has absolute power over every market. When demand exceeds supply, price rises. When supply is greater than demand, price declines. Mastering this Law in making decisions is vital for profitable Chart Reading.
On your bar chart, you have the facts about the changing of price and quantity (volume) in time. So, you have all the data to judge the balancing between bulls and bears:
The effect of all the factors — news, articles, forecasts, reports, analyses — are already included in your chart. The chart does this hard work for you. It combines and concentrates all these elements into the mixed effect that leads to buying and selling from all participants of the market: operators, and the public.
The chart with price and volume is your guide and partner. You don’t need anything else. Believe it, and do not argue with the chart. The chart doesn’t lie.
Charts send you a sign of what to do: Sell, Buy, or Wait. The ability to read the signs from charts will give you the edge. No more ‘herd mentality’ trading. Act in harmony with professionals.