One of the most important concepts in economics, especially in trading, is understanding supply and demand. Most of the time, you might think that this is a simple concept that we hear every day in our lives, but is it?
Supply
Supply is about how much of something is available to buy. Imagine it's like a lemonade stand. When the lemonade is easy and cheap to make, there's a lot of it (a big supply). But if it's hard and expensive to make, there's less of it (a small supply).
Demand
Demand is about how much people want that thing. Think of it as how much you really want a slice of pizza or a new video game. If a lot of people want it, there's high demand. If not many people want it, there's low demand.
Prices are like a way for supply and demand to talk to each other.
If a lot of people want something but there's not much of it (high demand, low supply), the price goes up because people are willing to pay more to get it.
On the other hand, if there's plenty of something and not many people want it (high supply, low demand), the price goes down because sellers have to lower the price to get people to buy it.
When one side goes up, the other goes down, and this helps determine the price of things we buy every day. It's like a balancing act.
It is an important tool that is can be properly learned it can help us become better at trading and finding when to enter and when to exit a trade.
If you want to identify the supply and demand then properly understanding an orderbook and a chart is fundamental !
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Posted Using LeoFinance Alpha
