(Original article by Sam Seiden, via: FxStreet.com)
Principle 1: Price movement in any free market is a function of an ongoing supply and demand relationship within that market.
A market is always in one of three states:
First, it can be in a state where demand exceeds supply which means there is competition to buy and that leads to higher prices. What does this look like on a price chart? A “pivot low” is a perfect example.
Second, it can be in a state where supply exceeds demand which means there is competition to sell and this leads to declining prices. What does this look like on a price chart? A “pivot high” is a perfect example.
Third, it can be in a state of equilibrium. At equilibrium, there is no competition to buy or sell because the market is at a price where everyone can buy or sell as much as they want. However, as the market moves away from equilibrium, competition increases which forces price back to equilibrium. In other words, competition eliminates itself by forcing markets back to equilibrium. Even though equilibrium is where the majority of candles are, we don’t necessarily want to trade in that area.
Principle 2: Any and all influences on price are reflected in price.
Principle 3: The origin of motion/change in price is an equation where one of two competing forces (buyers and sellers) becomes zero at a specific price.