A trading lesson in ‘How big players profit from the most important and recurring market dynamic’.
There was a strong storm which knocked over 100s of massive trees. A lot of birds lost their habitat. Tree branches and twigs were all over the place. Birds across all species had to gather twigs to rebuild their nests.
There was no shortage of twigs, but eventually, the city council would have to move the debris off the road and walk-ways, as it was causing a hazard. This process could take up to a week. Building a new nest takes about 2-3 days and repairing a nest would take only a day. So in an essence, there is great demand for twigs on the back of the damaged and destroyed nests, but also abundance of twigs as the storm scattered them all over the place. This caused Twig prices to drop dramatically after the storm in the run-up to the city’s cleaning.
If you were a Trader, you’d find it hard to find a trade before the council’s announcement. There is ample and cheap twig supply but also good demand for the next 3 days. It will be a choppy and un-tradable twig market for the next week. It’s hard to see anyone making substantial gains. It doesn’t look like this storm has granted you any opportunity to make money, yet.
What sets you apart from any other trader is that you understand both the supply and demand side. You know now that storms cause a great demand for twigs but also create an abundance of twigs far more. So there is definitely an excessive supply imbalance, and as noted, prices dropped sharply as a result. Next time there is a storm warning and dark clouds gather, unlike the average singing bird, you’ll scramble to short the twig market because you know exactly how everything will unfold.
Now, you’re not a bird and there is no twig market, but there is a real commodities market, a currency market, stocks, and indices. The dynamics are exactly the same. If there is a dry season and wheat crops don’t grow. There will be a shortage all the while demand is stable. You can bet that wheat futures will increase in price until new supply hits the markets. If the European Central Bank announces they are cutting rates and offering extra liquidity to the markets, Euros will swamp demand and prices will drop. As Euros get cheaper, you can safely short EUR/USD knowing the Central Bank is providing more twigs than there are nests to build.
This is how you want to make money from the markets. Not endlessly chasing the price on the charts, looking for clues when there are none. Too many traders like to bury their heads in the sand and exclusively draw lines and try to make sense of things, all the while ignoring what’s truly moving price around. The real big moves happen on the back of real news. The big and guaranteed money is made when you follow this simple method. Trading this way has changed everything for me and will be a game changer for you too. Understanding why the market moves and when it moves is paramount. Then you don’t just weather the storm, you use it to make you stronger.
The question is how do you do it? Where do you start? When do these major shifts happen? That dear reader, you can experience and learn first hand from our overview Speculators Trading Course. There is a lot of noise and junk in the price and news, understanding the essence of them is a game changer for every Trader’s success in the markets. Don’t hesitate, a year from now you wish you started today.