Saturday, January 06, 2007

Supply Vs Demand

In an uptrend, all along the way, demand is greater than supply. As long as the demand is greater than the supply, the uptrend will continue.

When people are optimistic, they become overly optimistic and they will overbuy. That’s why we have overbought situations. When the market is overbought, it does not mean that it will immediately fall. It may continue to be overbought for a long time.

When demand slows down and supply increases. The uptrend will be halted. As the supply becomes more and more and demand less and less, the trend turns down.

Those who are smart will sense the situation and start to unload their holdings. Profiting takings follow suit and soon supply greatly exceeds demands. Fear takes over; the situation becomes worse. The speed of the downtrend gathers momentum. The uptrend may lose up to 90% of the gain.

You may alter the rivers and the mountains but not human nature. That’s why those who do not study history are bound to repeat it.

Understand the movements of the market, and you will become a better trader or investor.

Good Luck.