Supply Strength Explanation

26 November, 2022

If you have been led to believe that the prices move depending on the number of buyers and the number of sellers; if the number of buyers is greater than the number of sellers, prices go up, & if the number of sellers is greater than the number of buyers, prices go down. Then you would be wrong.

The number of sellers or buyers is not what moves the price. What if one seller is doing all the selling to thousands of buyers? The price will go down. The answer to our question is that it is the degree of aggression of the buyers or the sellers and the volume of order-flow they submit is what moves the price. If a seller is aggressively executing large amounts of sell-orders at the current market price, the price will tick down with a lot of strength. If a buyer is aggressively executing large amounts of buy-orders at the current market price, the price will tick up. The volume of the order-flow being transacted is the key. For every buy-order, there must be a sell-order. When the buyer demand exceeds the available supply of sell-orders, the prices increase. When the seller demand exceeds the available supply of buy orders, the price will drop. This entire process is occurring constantly and the market is always trying to reach an equilibrium where buy-orders and sell-orders are continuously matched up to give us the current market price, for that specific moment.

The number of individual buyers and sellers is not as important as the amount of order-flow volume that each buyer or seller is transacting. The amount of order-flow volume being transacted at any one time and the aggressiveness of the submitted order-flow is essentially what moves the price. The degree of aggressiveness is the degree to which price will move. That is the story behind the up-ticks and down-ticks.

Strong participation

Massive candles in short period of time. Strong aggressiveness. Usually, big bodies

Normal Participation

Normal trend. normal aggressiveness, normal volatility

Weak Participation

Weak degree of aggressiveness, weak volatility. We usually have a lot of candles

 


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