The financial market is one big auction marketplace. It is important to understand that price moves in relation to supply vs demand. Just because you think price will go higher and place a buy order, it does not mean all market participants on the buy side support your decision. In order to understand what other trader's are thinking, let's take a look at the possible scenario's.
The Buying Side:
1. Those who are buying now.
2. Those who's stop orders are being triggered.
3. Those who have limit orders below the market.
4. Those who have buy orders placed above the market.
5. Those who are covering short sales.
6. Those who have sold higher and are buying back the retracement.
7. Those who have sold too fast and wish to enter again.
On the Sell Side:
1. Those who are selling short.
2. Those who are liquidating their long positions.
3. Those who's stops will be triggered.
4. Those who have orders placed to sell below the market.
5. Those who have limit sell orders placed above the market.
6. Those who are dumping their stock because they bought higher.
7. Shorts who covered too fast and want to re-short.
As you can see there are many reasons why one might enter the market with a long or short order. When both the buy side and sell side is evenly balanced, you will have a consolidating market. When confidence shifts towards one side, the markets will trend.
Once you see the market as one big auction place, it will help you understand balance vs imbalance. Market understanding is a crucial element in trading success.
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