# Understanding the Market

In starting your journey as a trader, you have to understand the role that you play in the market. We use the term “market” generously to refer to any situation in which a transaction between at least two parties can take place. Whenever you have someone selling something in the presence of another person you have created a market. When traders talk about markets, they can be talking about large markets such as the stock market (the market for stocks in general), or individual markets for just a single stock (the market for Apple stock).

In any case, as soon as you choose to act on a market you become its participant. In all markets you can separate participants into buyers and sellers. In whatever market, the buyers always want to buy for the lowest price possible, to get a better deal, while the sellers want to sell for the highest possible price to earn a higher profit. The market price, or the current price of any market, is always going to be the middle-ground between the price that the buyers are willing to pay, and the price that the sellers are willing to sell for. This is the essence of the demand and supply economics that make up any market.

Our goal as traders is to profit from understanding this dynamic, such that we are able to always buy and sell at the prices that make the most sense. When market prices appear to not make any sense at all, it is likewise our duty to try to exploit those inefficiencies and effectively regulate the market by participating in it. However, you will find that you’re not the only one that is trying to do that. In the market, everyone has an opinion, and their own narrative, behind why things are the way they are.

Take Apple Inc.’s stock as an example. As of June 2020, the stock is trading at $360 a share (varying tightly around this level). On one hand you have the buyers of the stock, and you have to ask yourself, why are they buying? Some might say that they believe that Apple has a long-term promise and that the company will maintain a large share of the smartphone market (see, another market), and become even more profitable than it already is. However, not every buyer will share this point of view. Other buyers might say that the company is irrelevant, but they own the stock because they believe that the perception of Apple in the eyes of other traders will be better in the coming months, and there will be even more buyers in the future. The conclusion of these two buyers is the same, they both think that the price of Apple will go up one way or another. However, they have different scopes of interest, different expectations, and different methodologies guiding their decision-making process. Now, what about the sellers? Some of the sellers will be selling their stock because they think the company has lost its edge. iPhones have become too expensive, the world is entering a recession, and Apple’s stock price will surely suffer as the company earns less revenue in the future, and that’s why they’re selling their stock right now. Other sellers will be selling just because it’s the right time and they want to move into cash, because they don’t see any short-term upside.

At the end of the day it is the sentiment of other traders that guides the market price. There is never one single reason why a stock moves, and outside of extreme cases – market participants will never all agree with each other.

What makes a good trader is an understanding of the market, its participants, and the information that governs their sentiment. If you’re able to identify a piece of information, or form an analysis, that is indicative of a potential future change in sentiment, then you will find yourself armed with enough information to decide what side you really want to be on.