What does he see? How does he manage to get a good position when, by the time you get to the market, prices always seem to be against your interests? How does such a trader know when the market is going to move up or down? Well, he understands the market and uses his knowledge of volume and price action as his primary cues to enter (or exit) the market.
His primary concern is the state of supply and demand of those instruments in which he has an interest. One way or another, the answers lie in some form of analysis of trading volume, price action and price spreads. Here at TradeGuider Systems Ltd, we have developed a methodology called Volume Spread Analysis (abbreviated to VSA), which has been built into the computer model that is utilised in the TradeGuider software.
Learning which questions to ask and how to obtain the answers require us to look more deeply into the markets. The stock market becomes far more interesting if you have some idea what is going on and what is causing it to go up or down. A whole new and exciting world can open up for you.
Nearly all traders use computers, and many of these traders are using Technical Analysis packages. They will have learned how to use well known indicators, like RSI and Stochastics, which are mathematical formula based on a historical study of price. Some packages have over 100 indicators and other tools that measure cycles, angles, or retracements. There is even software that analyses the effects of tidal forces, astrological, planetary, and galactic influences. To many traders, these methods will have a place in their trading decisions, because they will be familiar with their use. However, it can become a very frustrating business being placed outside of the market looking in, using these tools, trying to decide if the market is likely to go up or down.
The fact is, these tools never tell you why the market is moving either up or down
– that, in most cases remains a complete mystery.
People, unless they are naturally well disciplined, are extremely open to suggestion! Folks like to be given tips, listen to the news stories, seek out rumours in internet chat rooms, or maybe subscribe to secret information leaked from unknown sources.
For the most part, professional floor traders, syndicate traders, and the specialists, do not look at these things. They simply do not have the time. Professionals have to act swiftly, as soon as market conditions change, because they are up against other professionals who will act immediately against their interests if they are too slow in reacting to the market. The only way they can respond that fast is to understand and react, almost instinctively, to what the market is telling them. They read the market through volume and its relationship to price action.
You, too, can read the market just as effectively, but you have to know what you are looking at, and what you are looking for.
Read More : Supply And Demand
