This is the third in a series of education posts from Alan Hull. Alan Hull is a renowned technical analyst within the Australian Market. He has educated thousands of investors on how to apply technical analysis within their overall strategy. In this special series, Alan has agreed to share his Technical Analysis tutorials with Stockopedia members. He has committted to provide one ever three weeks. To learn more about Alan you can read his profile here. Or visit his website alanhull.com.au
To re-acquaint yourself with Alan's prior postings, please go to “Discuss” in the left hand column and selecting “Aus/NZBlogs” (see below)
Pattern Recognition
What makes a Market
A market can only exist when there is agreement on the sale price (in order for a transaction to take place) and disagreement on the current or future value of the asset being traded. When there is agreement on value there is no market. Disagreement on value is usually created because of the difference in peoples perspective or opinions. This point is illustrated clearly in example 2, below…
Example 1
There is general agreement that a $50 note has a value of $50. Because of this agreement in value it would be impossible to sell a $50 note for $60. Likewise, the owner of the $50 note would not be a seller at $40.
Example 2
An individual places lesser value on a tomato if they own a vegetable garden than the neighbour who has a dinner party in 3 hours time and wants to make homemade tomato soup. Supply & demand create disagreement in value. The person who owns the vegetable patch has had a win situation if he or she sells the tomatoes to a neighbour for 30 cents each. The neighbour has had a win situation if the only alternative is to buy the tomatoes from the local convenience store for 50 cents each. Win-Win situations can happen in markets!!!
In any working market, such as the Stockmarket, agreement on value is short term or the market ceases to exist. When there is agreement in the Stockmarket it usually indicates that a change is about to occur.
A ‘Point of Agreement’ indicates that all of the forces present, both buyers and sellers, are in agreement on price for a particular moment in…
