This is the post excerpt.
As taught in most institutions of learning, demand and supply, together, form the basic underlying principle of economics; they are essentially what drive our economy. Now, let’s understand the basic laws that this one principle states:
Law of Supply: Quantities of goods/services supplied increase as market price rises, and falls as the market price declines.
Law of Demand: Quantities of a good demanded tends to fall as price rises and vice versa.
Take a moment and thoroughly absorb those two laws before proceeding through the rest of this rhetoric, for what comes next builds upon those very laws and principles. This is not your conventional article, and I will in fact show you what you need to know before clicking that “buy” button on your brokerage or trading platform when next you trade.
Like the economy, the stock market is not any different; in fact, every rule that governs the economy governs the market. We’ve talked about demand and supply being the basic principles of economics, but we have not talked about the basic principles of the stock market. The “Big Boys” of the market (or “market makers”, as they are called) have made it almost surreptitious and secretive the main tool that is needed to be successful in the market, to the point where they throw so many algorithms and indicators at you to make you more confused.
However, I will make it easier, clear, and straightforward. The major principles in the stock market that you need to know are Support and Resistance. Do not fret, as they are essentially demand and supply—same principles, but named differently in the stock market for clarity and distinctive reasons. Support is demand, and it is basically where you have your buyers for a particular stock and at a given/predetermined price. There’s a psychology to this, and I’ll write about that in my next article.
You can simply improve your trading today by over 50% by just buying at or near support. It is where the most patient and savvy traders are buying, and that is where you ought to be buying as well. In trading, every single buying price must be validated; ideally, you want it to be where other traders are lined up because chances are that the stock price will go up from there, since a lot of people are essentially acting as a barrier from keeping the stock price from going any lower. Quite obviously, there are caveats to this, but that will be further explained in another article. So, stick around.
Connectedly, resistance is simply supply; that is, it is where you have a lot of sellers who are ready to sell once a stock goes up to a particular price. I am sure you’ve had this experience where you watch a stock go up to a given price and constantly fade out afterwards over a long period, sometimes days, weeks, and even months. That is basically resistance at work. Always remember that most of the sellers will be found at a resistance point.
If you have almost zero knowledge about how the stock market works, just buy a stock of interest near support and sell at resistance until you’re more acclimated to the market. There are videos that will show you how to find support and resistance levels, so be sure to look them up. Also, download Barchart app and use it to find support and resistance of any stock if you find charts to be rather elusive.