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What Really Drives Price Action in the Financial Markets?

In their quest to make money from the markets, few traders stop to think and ask themselves a very basic question about Price Action “Why does price move?”

We accept that most of the time, prices action develops in a relatively orderly manner. Traders tend not to worry about why that is. It just is.

Did you ever stop to think about:

Why prices don’t simply remain unchanged?
In a given market, why must price move at all?
For that matter, when it does move, why doesn’t it move just randomly?
How is it we don’t see the Crude trade at 49.99 one moment, 70.89 the next, and 5.00 just after that?

Many explain price action as a result of supply and demand, but supply and demand for what, exactly? A crude futures trader is trading futures contracts and not crude itself. Sure, if you hold the contract ‘till expiry, you are going to end up taking delivery of the actual oil. Most traders don’t do that. The contracts we trade are created and eliminated as people trade with each other. In other words, the supply is effectively infinite for futures. So how does an imbalance of supply and demand cause movements in price when supply is infinite? It doesn’t. With stocks, there are a limited number of shares issued. Limited resources theoretically becomes a factor. Most of the time though, scarcity in shares is simply not a factor behind price action and is absolutely not the cause of each individual change in price. Can you imagine almost running out of shares and then suddenly there being too many each tick up and down?

Read this Full and Comprehensive educational post about Price Action using some real orderflow examples HERE >>>>>>>