Actually, I just wanted to post blunt entry prices and sales zones and see how everything develops. But now some people have asked why and what these prices mean. To be honest, I wasn't expecting any comments :)
So this will probably be a long series of posts over the next few days and weeks, in which I will perhaps take the rose-tinted glasses off some people's eyes and others will immediately dismiss it as nonsense (perhaps simply because they don't understand it) :)
If you read this, try to engage with it and not immediately label everything as "wrong" just because it doesn't fit into your previous understanding.
Part No.1:
Why does the market move the way it does?
Everyone knows keywords or statements such as "supply and demand", "market trends", "news" or "insider information", all of which are often used by people to explain market movements.
Just as often, however, statements are made that everything is already priced in and that it is impossible to time the market.
I'll say this much:
Everything is wrong and somehow everything is right :)
The market basically moves according to supply and demand, that's true for now. However, only that would be very inefficient. According to the basic concept, there should always be enough buyers and sellers at price X.
But now we have a situation where there are a lot of big players on the stock market and even more small players.
I'm going to dispel everyone's illusion and say it straight out -> the stock market is only there to make the big boys richer and often with the capital of so-called "dumb money" or "retail". This doesn't even have to be the baker next door, but can also be a fund or a bank.
For supply and demand to meet and for the big boys - we'll call them "smart money" from now on - to take their profits, there has to be enough liquidity in the market and they have to have information that we wouldn't otherwise have.
1. what is liquidity and how does the market actually work?
Liquidity basically describes how much money/volume is in an asset. The largest market in terms of liquidity is the Forex market, for example.
The amount of liquidity in an asset also determines the price formation. If an asset is very liquid, large transactions can be carried out without a disproportionate price impact.
If, on the other hand, an asset is illiquid, a sale or purchase of a small proportion of the asset (measured against the maximum supply) can result in large price jumps.
Why is this important?
Our stock market basically works like this:
LoneMelone wants to sell 100 Tesla shares and wants to do so as quickly as possible.
In theory, there should now be someone who buys these 100 Tesla shares from me. That would be very inefficient and would take far too long.
In practice, it therefore works more like this: LoneMelone sells his 100 Tesla shares into a pool and someone else then buys 100 Tesla shares from this pool again at time X.
Who provides this "pool"?
So-called market makers, i.e. companies that basically do nothing other than provide this liquidity pool and buy and sell shares.
This is usually done by algorithms.
So why am I telling you all this?
Because in addition to supply and demand, the market always follows the most liquidity.
As we described at the beginning, a lot of liquidity is also needed for very large transactions so that the influence on the price is as small as possible.
"Smart money" always buys at the "best prices".
How do they do that?
They build up liquidity that they later use themselves.
They do this using a variety of methods. I'll list just a few.
- Trends
- A trend is simply the accumulation of a long or short position for smart money in a trend there are always corrections when smart money needs more liquidity to build up further short positions at a better price.
- A high or a low / possibly even a double bottom or double top
- There are usually many stop losses above a high or below a low. When these are triggered, the smart money uses the liquidity that has just been released to increase its position. -> This is why highs and lows are often only broken for a short time and then the trend continues as planned.
- News
- Everything is priced in, months in advance. News is just a way for smart money to push the price in the direction they want or to build up a lot of liquidity in the direction they need it. If the inflation data comes out better than expected in 6 months, smart money has already accumulated long positions 3 months in advance, e.g. with the help of a trend or a sideways movement.
There are many more ways, but I just want to give you an impression. I will also show many examples on the chart itself in the future :) I would also be happy to show you your favorite charts so that I don't have to cherry-pick. I am 100% transparent and I can show everything I write here on the chart.
It happens on any time frame you want.
So:
A quick recap:
1. the market moves according to supply and demand
2. in addition, the market always moves to liquidity. Practically like a magnet.
3. today's chart shows tomorrow's news
4. large institutions or smart money need a lot of liquidity to execute their large transactions
5. any information you could find out via fundamental analysis or even the information you don't have can usually be read off the chart because smart money with its 1000 analysts definitely has more information than you :)
If you want to keep up with the info posts you can follow me or just check my profile regularly.
Ask as much as you want but this is just the beginning and there will probably be more posts to come :) The topic is huge and I had to spend 1000s of hours teaching myself and am still learning new aspects :)
