Abstract of the article
- Most traders do not know what they are doing and do not have a plan in advance. They often make decisions on the spur of the moment.
- If you can predict the behavior of the groups, you can understand how the market balance will be affected and in which direction the prices will move.
- People’s belief about the effectiveness of goods or services in meeting their needs determines the value of those goods and services. The final price of the exchange of goods or services is also determined by the law of “supply and demand”.
- Trading is the buying and selling of something of value to satisfy a need or goal between two or more people.
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Do not trade for no reason
Most traders believe that knowing the reasons for market behavior helps them predict the market’s next move. This belief is correct assuming that traders know exactly what they are doing at any given moment; But we must say that the reasons that traders give for their work are often irrelevant because most of them do not actually know what they are doing and they do not plan their work in advance and generally make their decisions instantly and quickly. Almost all the reasons these people give are just to justify their actions. In general, traders must enter long and short positions, hold the position for a while, and then exit. It is the entry and exit of traders from positions that affects prices like a force. If traders planned their actions and disclosed the reasons for doing these actions, they could certainly help other traders in predicting prices and positions; But the reality is that there are very few traders who know the reasons for what they do, and those few usually don’t talk about it unless they have a specific reason. In fact, those traders who act with confidence and forethought and know that they can influence prices, try to hide their information about positions; Because the disclosure of this information is equivalent to their lower chances of success. But after doing the job, they deliberately expose the position so that other traders will be encouraged to take the position and the prices will move in their desired direction.
Assess herd behavior
Traders’ behavior is often collective or herd. Each individual trader is placed in a group of people with whom they have a similar perception of opportunities or threats. The motivation of these groups is to enter positions, gain profit, and to exit positions, to avoid losses. In fact, these people have realized that there is no value in accepting the risk of profit from that position, compared to accepting the risk of its loss. When, due to a series of economic conditions, a group unilaterally enters a position or exits another position, the balance of prices in the market is disturbed and prices start to move. Consequently, if we can learn the unique characteristics of each group, we can predict how likely one or more groups will be to act.
Supply and Demand
We are interacting with our surroundings at every moment of our lives and express ourselves in our own way. In fact, everything we do at any moment is a form of self-expression that we mean to fulfill our needs and desires or achieve our goals. Today, people can do things beyond basic needs, but this requires money. In fact, money has become our goal because we can use it to express ourselves in many parts of society and almost everything that is done in society requires spending money. Therefore, at the most basic level of social life, money represents a kind of freedom in self-expression. Each member of the society provides certain goods or services to others and express themselves in this way. In this way, a complex system of communication is created, in this system, for the exchange of goods and services, it is necessary to agree on their value. People’s belief about how effective the goods or services are in meeting their needs determines the price or value of those goods and services. In the meantime, public belief about the abundance or scarcity of that product or service can also affect its value. Finally, the final exchange price of goods or services is determined by the main law of economics, namely “supply and demand”. In the language of psychology, this law is equivalent to fear and greed in humans. Human greed is rooted in the feeling of lack and insecurity; It means that we feel that the inventory is not enough to meet our needs. If two or more people have the same fear of this issue, they will compete over available resources to satisfy their needs.
Necessity of trading
Bartering means exchanging something of value between two or more people to satisfy a need or goal. What is clear is that no trader enters a trade believing that they will lose or fail to meet their needs. But since the goal of both sides of the transaction is to win, we conclude that the two parties will never trade together unless their beliefs about the future value of the goods or services or stocks being traded are diametrically opposed. Although they may have reached an agreement on the value and price of that product or service. For example, when a shareholder intends to sell his shares, it means that he is disappointed with the profitability of this share and considers the possibility of losses high. Now, is the buyer of this stock fed up with his money and property or does he want to fail when he buys this stock? no Only the buyer’s opinion about the future of this share is completely opposite to the seller’s opinion. In short, if you want to know how to predict price behavior, you don’t need to look at the reasons for it. What you should pay attention to is understanding how the majority of traders currently interpret market conditions in a dream with their fears of shortages or concerns about being left behind or both.