18 Jan The Market Laws
In the previous posts, I mentioned about Wyckoff trading style. If you would try to search in Google some info related to Wyckoff logic, probably in the very first articles you will find the information about Wyckoff’s Three Market Laws:
1. Demand and Supply
2. Cause and Effect
3. Effort and Result.
However, there are not very clear explanation added to these Laws. Let me describe in simple words the rational meaning behind this logic. It will be used in this Course.
The Law of Supply and Demand
What does it mean in Chart reading analysis?
Look the chart, this is noname example stock:
At the pointed 5-m candle 2767 contracts were bought. What were the reasons led to these surge of buying?
– 1000 contracts were bought by robots because they follow their algoritms;
– 500 contracts were bought by break-out traders who placed BUY_STOP orders above previous current range;
– 500 contracts were bought by people who follow RSI, MACD, MA, Stoch, CCI and other staff;
– 250 contracts were bought by people who read the positive expectation in the media;
– 250 contracts represent the triggering of SL of sellers above the previous range;
– 250 contracts were bought by fund managers using their secret strategy;
– 12 contracts were bought accidentally by mistake.
They all combine the Cumulative Demand power. Analyzing the Charts with the Law of Supply and Demand does not require knowing the reasons behind the decision to buy. It is not necessary.
Taste your hamburger whole as one product, do not eat separated.
Chart prepares your hamburgers in form of candles/bars/volumes.
What does the Law of Cause and Effect mean?
Up Trends are Effect of Accumulation. Accumulation is the Cause for next Up Trends.
Down Trends are Effect of Distribution. Distribution is the Cause for next Down Trends.
Financial markets are the zone of biggest money circulation, so it is very naive to think that price movements are not managed. It means that big Trends are fully carefully prepared. During these preparations, market operators use their advantages and build their lines in accordance with upcoming price movement. It is very hard to recognize the intentions of market operators. However, we will try using the price/volume relationship.
What does the Law of Effort and Result mean?
Keep reading. I will reveal this Law using numerous examples in the very next Lessons – EVRT (Effort versus Result on Top) and EVRB (Effort versus Result on Bottom).