Understanding Price MovementNovember 18th, 2021
In his recent webinar Bringing Market Structure to Life, Trade by the Numbers founder Mark Sedlak compared price movement in a financial market to that at an auto auction. If a car is put up for auction, he said, the price of that car increases over time. As the price increases, there are fewer and fewer buyers willing to pay. Eventually, there is only one buyer left, the winner of the auction. Of course, there are differences between an auto auction and a financial market, but the similarities are striking.
“As prices [in the market] rise, there are fewer participants willing to pay the higher price,” Sedlak explained. “Eventually, there are no longer enough participants pushing the price higher, so it must come down.”
The market can move in only three ways: up in an uptrend, sideways when it’s consolidating and down in a downtrend. It is the push-and-pull of buyers and sellers, and the resulting fluctuations in price, that create market structure patterns.
Sedlak acknowledged that these may seem like basic concepts. However, he also stressed how important it is for all traders to understand these ideas, calling them “the foundation of all markets”. He especially emphasized the importance of having an objective way to determine trend. Following an objective if-then formula for your trading can help you analyze the markets accurately and improve your trading consistency. Having rules, and then sticking to them, is the “backbone” of developing an edge in the market, he said.
“Keep in mind that you don’t even need to be right 50% of the time to have an edge in the market,” he explained. “But it is so important that you have the if-then structure when trading the markets”.
In this short clip, Sedlak explains these ideas in greater detail. To learn more about market patterns and how to identify trends, be sure to watch Sedlak’s full-length webinar. For even more information about market structure and trend analysis, also check out Discover Market Structure and Swing Trend Analysis, hosted by Kris Lassen of LizardIndicators. Also, visit our exclusive Webinars Page to browse our full library of free webinars and to register for future events!
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