This article is to explain and show how a price flow actually works, thorugh some extremely simplified examples, in the attempt to show what is in my opinion the most important concept to understand about financial markets.
Everything starts from accepting a law: if there is an imbalance between supply and demand, as direct consequence a price will change. This is true for any exchangeable stuff, will it be a product, a service, an idea, a commodity and so on. It is an extremely simple concept indeed: more demand equals price up, more supply equals price down. If there is 1 unit of anything, and a lot of people looking to buy it, price will be rising till the point where only 1 will be the buyer.
On the other side if there are 100 units and few buyers, price will be correcting down to attract new customers till the point where all units will be sold.
Supply / demand flows
In a financial marketplace there is a continuous exchange and participants can be either selling or buying the same instrument, or even simultaneously selling and buying. An important difference with any other market, is that there is unlimited quantity of any given instrument, so price…