25 May 2014
Moses Stock Corner – Price Action, Bid and Ask
Thought and Notes of Trading – What is price action?
At any given point in time at the financial market, price action represents a strike between buyer and seller. It also reflects their emotions and pressure.
At any given time, the market generally consists of two groups of traders, buyers who want to buy at lower prices and sellers who want to sell at higher prices. In an Asia stock market like Singapore Stock Exchange, SGX or Hong Kong Hang Sang Exchange or even European market like London Stock Exchange, the prices are made explicit by the participants when placing their order.
A buyer only willing to buy at lower price, the highest price the buyers willing to buy is the bid. On the other hand seller only willing to sell at lowest price, the lowest price sellers willing to sell is called ask. At all time both ask and bid price exist in the market. The different between the bid and ask is known as spread. In a very liquid market the different between the bid and ask is very small, example like 1 cent.
Why price moves?
For a very active stock, if the buyer think the stock is very good. The buyer want to get the stock fast, he or she would not mind paying extra cent to get the stock. When the market has more buyers than sellers, each time the buyer willing to pay more to get the stock – the price will move higher.
It is true too, when the seller want to take profit fast. The seller does not mind to get less, one cent to sell the stock. The deal will go through, if there are more sellers than the buyers and sellers don’t mind to get less to take profit. The stock price will tumble down.
Market Moves in Zig Zak
In a liquid market, the buyers and seller number keep changing. In trading, buyer is sometime term as bull, and seller is bear. At time, we describe the activity as bull and bear fight. In an active and liquid market, the buyer and seller number continues to change, at time there are more buyer the price push up, at time there are more seller the price will dip. These momentum goes at random; it will slow down or speed up.
For a trade to take place, somehow the buyer and seller are willing to accept the same price.
Thank you for reading the post, please check the site once a while.
Moses
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