Chapter 10: Market Whisperer's Secrets: Deciphering the Language of Price Action for Consistent Gains

My name is Harjot, and I've been trading for 7 years, 5 of which were under the guidance of a seasoned head trader at a prestigious proprietary trading firm. I've learned invaluable lessons from my mentor, Robb, who has 27 years of trading experience.

Now, it's my mission to share my personal experiences and insights to help others navigate the world of trading.

Demand and supply.

That's what the market is, said Robb.

Market go up when demand is more than supply.

Market go down when supply is more than demand.

Reading price action is an act of understanding demand and supply.

What has the price been doing recently. In other words, has there been more supply or demand.

What is price doing right now? In other words, do you see more demand or supply right now?

There are many reasons that cause demand. Many reasons that cause supply.

Demand and supply come from people. Like you and me.

People do things, sometimes for logical reasons.

Many times, for emotional reasons.

The more the volatility in the market, the more you have to know that it is emotions that is driving people's decisions.

What kind of emotions?

There could be a person out there who bought a stock at $10, now that stock is at $4 and he is losing money everyday. He can't tolerate the pain anymore, he wants to release himself from this pain. He cannot see the stock go any lower. He closes.

What happens when he closes his position?

He creates supply. The stock that used to be his, is now supplied into the market because he wants to get rid of it.

This increases supply. In a market that went from $10 to $4 and now this person is also selling, it creates further supply, which means more selling pressure, which means market goes lower still.

This happens until there is no one left who wants to sell anymore.

Then only one thing can happen.

Demand.

There is no body left who is selling, prices are a lot cheaper.

What perks a human beings eyes when they go to the grocery store?

A BIG FAT 60% discount.

Best believe that vegetable is selling out.

It's the same produce for less money. It's natural to be attracted to it.

The markets are no different.

Price action isn't just candlestick patterns.

It isn't just confirmation for you entry strategy.

It is a story.

A database of peoples emotions and logical decisions.

How about the opposite example?

A person buys a stock at $10. The stock runs up to $47.

This person is deeply in the money. He's not thinking 'OMG I'm making so much money, how much more can I make'

Instead, he's thinking 'I don't want to lose this much profit, let me take my profit'.

When he takes his profit, what does he have to do? He has to sell the stock.

Imagine 1 million people who bought the stock at $10 and all are thinking the same thing.

They sell their stock.

What has this done? It has created supply in the market.

That is you see that when price goes up a lot, it also comes down.

Let's say that people started selling their stock because they want to have that awesome profit at $47.

As the supply increases, price starts coming down. The people that were of the first thinking, the ones with the 'OMG I'm making so much money, how much more can I make', they start to panic.

Price is going down, their profit is going down.

Bit by bit, with each price tick down, they feel the pain of losing their unrealised gains more and more.

When their pain threshold is reached, they can't take it anymore, they have to sell and take whatever profit they have left.

What does this cause the market to do? Sell off.

Demand and supply shift for many reasons.

In up markets, if the people that were buying at the bottom are now closing their positions, they are basically creating supply. The very people that made the market go up can cause it to go down. Vice versa.

Trading is the markets is more than just price action. It is an understanding of what is happening behind the scenes.

The ability to get into a trade because you have sound reason for your decision and then the very next second, the ability to get out of it because you have that little bit of extra information that is now telling you that what your logical conclusion was when you made the entry is now invalid and that it is now wrong.

So you get out. In the blink of an eye.

This is how great traders do it.

This is not permission to get in and out of trades by random and not following a game plan.

Rather this is a invitation to you to look at the markets from a different lens.

Make decisions on demand and supply.

Who is a happy participant of the market, who is feeling the pain?

What are these kind of situations going to cause people to do. What kind of actions are they going to take?

How emotional are they?

Is there anyone else left to buy this? Am I going to be the last sucker who buys at the top because I simply cannot see the price going any higher without me.

Little are you aware that the people that bought at the bottom can no longer stand even the single little price movement down because they are afraid to lose their unrealised gains.

Demand and supply. The foundation of price markets.

Yet so overlooked.

Thanks, Harjot