The importance of supply and demand in trading

Most traders believe that knowing the reasons for market behavior helps them predict the market’s next move. This belief is correct assuming that traders know exactly what they are doing at any given moment; But we must say that the reasons that traders give for their work are often irrelevant because most of them do not actually know what they are doing and they do not plan their work in advance and generally make their decisions instantly and quickly. Almost all the reasons these people give are just to justify their actions. In general, traders must enter long and short positions, hold the position for a while, and then exit. It is the entry and exit of traders from positions that affects prices like a force. If traders planned their actions and disclosed the reasons for doing these actions, they could certainly help other traders in predicting prices and positions; But the reality is that there are very few traders who know the reasons for what they do, and those few usually don’t talk about it unless they have a specific reason. In fact, those traders who act with confidence and forethought and know that they can influence prices, try to hide their information about positions; Because the disclosure of this information is equivalent to their lower chances of success. But after doing the job, they deliberately expose the position so that other traders will be encouraged to take the position and the prices will move in their desired direction.

Traders’ behavior is often collective or herd. Each individual trader is placed in a group of people with whom they have a similar perception of opportunities or threats. The motivation of these groups is to enter positions, gain profit, and to exit positions, to avoid losses. In fact, these people have realized that there is no value in accepting the risk of profit from that position, compared to accepting the risk of its loss. When, due to a series of economic conditions, a group unilaterally enters a position or exits another position, the balance of prices in the market is disturbed and prices start to move. Consequently, if we can learn the unique characteristics of each group, we can predict how likely one or more groups will be to act.

We are interacting with our surroundings at every moment of our lives and express ourselves in our own way. In fact, everything we do at any moment is a form of self-expression that we mean to fulfill our needs and desires or achieve our goals. Today, people can do things beyond basic needs, but this requires money. In fact, money has become our goal because we can use it to express ourselves in many parts of society and almost everything that is done in society requires spending money. Therefore, at the most basic level of social life, money represents a kind of freedom in self-expression. Each member of the society provides certain goods or services to others and express themselves in this way. In this way, a complex system of communication is created, in this system, for the exchange of goods and services, it is necessary to agree on their value. People’s belief about how effective the goods or services are in meeting their needs determines the price or value of those goods and services. In the meantime, public belief about the abundance or scarcity of that product or service can also affect its value. Finally, the final exchange price of goods or services is determined by the main law of economics, namely “supply and demand”. In the language of psychology, this law is equivalent to fear and greed in humans. Human greed is rooted in the feeling of lack and insecurity; It means that we feel that the inventory is not enough to meet our needs. If two or more people have the same fear of this issue, they will compete over available resources to satisfy their needs.