“I’ve been told that prices go up because there’s more buyers than sellers…

But the question is when someone is buying, doesn’t there need to be a seller to complete the transaction?

So in essence, isn’t every buyer matched with a seller?”

That’s a good question. It actually address the foundation of trading. Most people don’t bother working through the mechanics of it,

If there are more buyers at $1.00 than sellers at $1.00 then after all the $1 buyers clear out the sellers at $1.00 then the

$1.00 buyers either choose to buy at $1.01 where there may be more sellers, or they wait for sellers to come back in offering $1.00

If sellers are only willing to sell at $1.10 and the buyers at $1.00 are willing to go up to that offer price, then we see the price move from $1.00 to $1.10.

So it really isn’t accurate to say that there are more buyers than sellers… there are always equal number of buyers and sellers.

What’s more accurate to state is that price moves up if there are more buyers than sellers at a given price AND buyers are willing to go up and pay sellers at a higher price.

Because even if there were more buyers at $1 than sellers, if buyers were unwilling to hit the offer at $1.01, then prices will not move up.

So what makes buyers more apt to follow prices up and hit a higher offer?

Well they must believe prices will go even higher.

What makes sellers willing to sell at the prices they sell at? They must believe prices won’t go higher, but will go lower.

Buyers buy because they believe prices will go up, sellers sell because they believe prices will go down.

So the key is being able to read the balance between the two…

Hope that helps.

If you have any trading questions, feel free to add them as a comment below.

Categories: Trading

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