💱 Price System | Free Market vs. Government Intervention


What is the role of the prices on the market? What happens when the government interferes
with the market and sets a maximum or minimum price at a level other than the free market
would? Why is it so important to leave prices to
the market? One of the key facts concerning the market
economy is that people exchange goods between themselves in order to improve their well-being. Every exchange benefits both of its parties,
at least at the outset. Hence it is crucial for such exchanges to
be as effective as possible. Product prices are shaped by market exchanges. Thomas Taylor wrote in this vein: “The prices
that emerge in the market are not unexplainable; they always are the result of subjective valuations
expressed by individuals who choose to buy or sell or to abstain from either action.” The supply and demand curves for a given good
are made up of a multitude of individual consumer and producer preferences. Every one of us by acting as a consumer creates
and adds to his own demand curve for every good. Every one of us determines how many units
of a good he or she can buy at a certain price according to, as we have said in the Value
of Things video, the law of decreasing margina lutility. I will buy five apples for a price of $1 each,
and two for $3 each, but I won’t buy any for $5 an apple. Your own preferences may differ. The people on the market establish a market-clearing
price for each and every good. Too high a price will cause surpluses, with
producers unable to sell their stock of goods; on the other hand, too low a price will cause
shortages, with the entire stock sold out before all consumer demand could be satisfied. At very low prices manufacturers may even
refuse to sell goods and decide to store them in anticipation of higher prices in future. How does the market deal with it? Manufacturers will eventually have to lower
the price not to have their inventories withheld from the market indefinitely. Consumers, in turn, by quickly buying out
the undervalued good, will convince the producers to raise the price; higher price will then
satisfy consumer demand by encouraging producers to produce more, and possibly influence other
producers to enter the market. It is crucial to emphasize that the market-clearing
price is not one set in stone forever. Any change in supply capabilities or in human
preferences will shift supply or demand curves, respectively, and then the market will again
be looking for a new market-clearing price. This process may seem complicated or difficult,
but all of this happens naturally in the marketplace. The market regulates itself through the actions
of its participants and does not need any external interventions to work well. On the contrary, any intervention causes the
market to be less efficient in satisfying human needs. Let’s see why. Suppose a terrible drought fell upon some
region. Faucets dried out in houses. Small inventories of bottled water were beginning
to vanish quickly. Casual shoppers trying to buy water were driven
to the brink of violence. Water became so valuable that shopkeepers
raised prices from $2 to $10 a bottle, and people still wanted to buy it. The situation lasted for 3 days, after which
a representative of the government came and said: “Citizens! We cannot allow for ordinary men to be coerced
to pay $10 for a bottle of water they need to live. Today the Congress adopted a law that sets
a maximum price water to $2 a bottle.” Given the lowered price all stocks of water
have been exhausted in 2 hours. Now the same people who have limited themselves
to buying 1 bottle a day at $10 a bottle, now bought 5 bottles, thus making it impossible
for some people to get any water. By artificially lowering the price the government
caused an immediate shortage. What then needed to be done to hold back the
crisis? The answer is: nothing. Higher prices would encourage bottled water
producers from neighboring regions where water is abundant, and they would soon begin to
supply it. The existing producers would also go to greater
lengths to find more water to sell in spite of the drought. The entrepreneurs wouldn’t do this because
of their benevolence, but merely in order to get ahead of their competitors in supplying
their clients with water in a competitive market. In effect there would be more water, and so
its price would start to return to normal . The higher price thus allows for more effective
distribution of a rare good in time of crisis, reduces its consumption, and by encouraging
water companies to invest in production eases things up along the road. The artificial reduction of the price made
for an immediate shortage of water for many, and played havoc with the chances of escaping
the crisis quickly, as producers were discouraged from providing enough water. Now imagine a different scenario. There was a country producing 10,000 bushels
of wheat per year. Some of the farmers invested in their businesses. They bought harvesters, tractors, irrigation
systems and significantly improved production efficiency. The rest did not invest and consumed their
earnings without second thought. Due to innovations adopted by the former group,
the capacity to produce wheat increased to 15,000 bushels at the same price. Then the increased supply caused the price
of wheat to fall. Less innovative group of farmers were troubled
by this outcome. Because they did not invest, their costs were
unchanged. Given the lowered price they began to lose
money. So they contacted their representatives in
Congress , and started public protests. Angrily they shouted: “The government has
to do something!” Their political influence was powerful enough,
and the government intervened. A minimum price of wheat equal to the original
price was initially set. This, however, quickly caused production excesses. Consumers were still willing to buy only 10,000
bushels at the old price. Protests escalated, this time over wheat rotting
idly inside grain elevators. The government reacted by imposing a cap on
production per square mile to match the level of productivity of the least productive farmers. This, however, was unacceptable to more efficient
farmers who invested their money precisely because they were counting on increasing their
earnings by increasing production. They were left with innovative and expensive
technology that they were now unable to use properly to achieve profitable levels of production. Finally, the government has decided to remove
restrictions and buy all the surpluses. As a result, all consumers had to buy grain
at the old price, while, additionally, paying for excess production in taxes. In the following years the surpluses of the
wheat the government was trying to sell began to pile up, because the demand for it was
too low at the offered price. The only thing the government could do other
than collapsing the market price was simply to destroy all surpluses or export them at
a discounted price, thereby supporting foreign markets at the expense of the domestic economy. What should the government do? Once again: nothing. It should allow prices to fall because it’s
in the interest of all consumers. Less efficient farmers would have to invest
quickly or place their businesses in more capable hands. Every consumer of wheat who would buy it at
a lower price would have extra money that could be spent on something more. For example on products soon to be produced
by newly retrained farmers. The wealth of the society would increase. Any intervention in prices is harmful. The same goes for wages. When a government sets a minimum wage, it
creates a surplus of people willing to work and unable to find jobs. When a central bank lowers interest rates,
it causes a scarcity of real resources. If we want our needs to be met most effectively,
then prices should be left to the market.

Marketing-Mix: Die 4P des Marketing


The goal of marketing is to
consistently align your company with the needs of the market. Marketing thus describes
an entrepreneurial task whose success requires a strategy. In this video we introduce
the term marketing mix, which is part of the
implementation of such a strategy, in its basic form according
to Jerome McCarthy. We focus on the four P’s of marketing: Product, Price, Place and Promotion. In its basic form, the marketing
mix was first proposed in 1960 by American marketing professor and author Edmund Jerome McCarthy. The marketing mix is an
important instrument for running target-oriented,
successful marketing campaigns. It describes the four P’s of marketing that we now want to discuss in more detail. 1st Product: The products or services
that are to be distributed are the core of every company. Product policy deals with
all activities and decisions relating to the selection,
further development and marketing of these
products and services. The product policy is therefore the most
important pillar of the marketing mix, as it creates the basis for all
further marketing measures. It is very important that the product
life cycle is known and considered. The product policy determines, for example, which product will be put on the market, which packaging it will receive or whether a certain product must
be withdrawn from the market. Furthermore, products are classified by defining quality,
quantity, type and design. A common classification is Customer Products for the B2C market such
as shavers and Business Products such as
office supplies for the B2B market. 2nd Price: The pricing policy is
essentially about sales pricing. This starts with the question of how much a customer should
pay for the product or service. The management of special offers
such as discounts as well as delivery and payment terms are also discussed. The price itself depends on the market. The market consists of suppliers,
buyers and often also competitors. However, one must not forget the costs, since as a company,
you certainly want to make profit. Possible influencing factors on the price
are among other things the cost price, the demand at the market, the price of the competition products, products, the use for the customer and possibly also the product lines,
into which the product is to be integrated. Price levels and price differentiation
are relevant in this context. 3rd Place: The distribution policy covers
all management activities related to the distribution
of a product or service. This includes all decisions on the
path of the product or service – from the manufacturer to the end consumer. In addition to a sales
strategy and the sales process, this also includes physical
and logistical distribution. In retailing, for example, one considers whether to place one’s goods
in a classic sales outlet or, as in online mail order companies,
send them directly to the customer at home. However, such different
distribution channels are by no means mutually exclusive. Often several options exist in parallel. For example, you can
eat burgers in a restaurant have them delivered to your home. For a successful distribution
policy, sales agents such as retailers or wholesalers as
well as sales assistants such as freight forwarders or
consultants are usually required. 4th Promotion: Communication policy has become
increasingly important in recent years. The focus is on passing on
relevant information and content. When is the product sold? Where can it be obtained? In what quantities should
the product be sold? Is the product sold
directly to the customer or via a wholesaler instead? In addition, communication controls the expectations and opinions
regarding the product or service. A distinction is made between
internal and external communication. The internal communication policy
is aimed at internal stakeholders, in particular employees, while the external communication policy refers to stakeholders
outside the company – such as customers and suppliers. An ideal communication strategy presupposes that internally and externally
consistent messages are conveyed. The most established communication
tools are advertising, sales promotion, public relations,
direct marketing and personal sales. Other communication tools such as sponsoring or trade
fairs are also conceivable. The 4P’s of Jerome McCarthy’s marketing mix provide the most important tools
for a successful marketing strategy. The marketing mix is particularly
relevant for companies that launch consumer goods on the market. Other marketing instruments
are often added for services. Some authors extend the marketing mix for example by additional P’s such as People, Processes
and Physical Evidence.

How The Financial Markets REALLY Work – The Depth of Market


Okay, let’s now jump to a scenario, in which
we will see how the price really moves. What you see in front of you is called ‘Depth
of Market’. This Depth of Market displays how many limit orders there are at a particular
price. On the left, we will see buy limit orders and on the right, we will see sell
limit orders. This Depth of Market is nowadays a basic feature
of any charting platform and you can commonly find it as a ‘DOM’, which is abbreviation
for ‘Depth of Market’. One important thing to mention is that DOM only displays limit
orders – this is sometime called a ‘passive orderflow’. On the DOM, you cannot see market
orders – market orders are called ‘active orderflow’ and there are different tools for
displaying them. Another important thing to bear in mind is that this DOM is not static,
because markets are not static. DOM is dynamic and numbers of limit orders change all the
time – simply because there may be hundreds of people watching the market at any given
time. And they are sending orders, changing them or canceling them. So to keep it clear
and simple, in this scenario we are going to assume that there are only a few traders
who trade this market and we know about all of them. Say that the market opens at 8 AM and the
first trader comes in. He want to buy. He wants to buy 5 contracts at a price of 98,
so he doesn’t want to buy now but he specifies the price. Therefore, the sends a buy limit
order to buy 5 contracts – and you now know that he is a passive buyer. On the DOM, his
buy limit order will be displayed like this. It will be on the bid side, because it is
a buy limit order and DOM will show a quantity of 5 on bid at a price of 98. One minute later,
another trader comes in. He wants to sell – he wants to sell 10 contracts at the price
of 99. He specifies the price, so he uses a sell limit order and he is therefore a passive
seller. His sell limit will be on the ask side – because he is asking somebody to buy
10 contracts from him and he’s asking for price of 99 per contract. On the other hand,
the first trader is willing to buy no higher than 98, therefore his order is on the bid
side. Now, two more traders want to buy and sell.
Trader 3, who wants to buy 2 contracts at 97 and trader 4, who wants to sell 3 contracts
at a price of 100. On DOM, we can already see these new limit orders. None of these
orders will be paired with each other and the price doesn’t move – because all these
traders demand a different price. At the moment, 2 buyers are willing to buy at 98 and 97 and
2 sellers are willing to sell at 99 and 100 respectively – so there is no agreement between
them. Let’s continue. We’ve got one more seller,
trader 5, who wants to sell 4 contracts at a price of 99 – so same like trader 2. So
the ask is now 14. And this ask size of 14 consists of: 10 contracts of trader 2 and
4 contracts of trader 5. Still, nothing happens. But suddenly, somebody comes in and says – ‘I
don’t want to wait anymore. I want to buy 5 contracts now’. And this is our aggressive
buyer that we were waiting for. You should remember that he uses a buy market order and
this order doesn’t specify the price. The buy market order buys the first available
offer from a passive seller. Where is this first available offer? At the price of 99.
So this aggressive buyer buys 5 contracts at a price of 99. By doing this, he cleared
5 sell limits on the ask side at a price of 99. That means the ask at a price of 99 will
be reduced from 14 to 9. All of these 5 sell limits at a price of 99 belonged to trader
2, because he came first. And therefore, he has got a sell limit for 5 contracts left,
still waiting to be matched with more aggressive buy market orders. So at the price of 99,
there are 9 sell limits left. And they will be filled in the following order – firstly,
all of the remaining sell limits of trader 2 and then, sell limits of trader 5. So it’s
like a queue – the limit orders are sorted chronologically with a logic of first comes,
first served. So because the trader 5 came in later than trader 2, then he has got to
wait until the trader 2 will get filled all of his sell limits. Now, aggressive seller comes in, making the
price to move. The actual price is 99, because that’s the price at which the most recent
trade took place. The aggressive seller wants to sell 3 contracts using a sell market order.
You should remember that the sell market order is paired with the first available bid from
a passive buyer. In other words – it is paired with the first available buy limit order on
the bid side. Where is this first available buy limit? At a price of 98. So the aggressive
seller send the sell market order and the passive buyer buys from him. Now, because
this passive buyer has got his buy limit at a price of 98, the price goes down so it can
match the sell market order to this buy limit. The aggressive seller sold 3 contracts, therefore
he clears 3 buy limits at a price of 98 and there were 5 buy limits at this price in total.
Less 3 of them were cleared by this aggressive seller, that means that there are 2 more buy
limits left to filled at this price. Notice that the price has moved down, yet the number
of sell vs. buy orders is equal. The price didn’t move down because there were more sellers
than buyers, but because sellers were more aggressive than buyers. Now, what needs to happen in order for the
price to move from 98 to 97? It’s simple – there must be more aggressive sellers who will clear
these 2 more buy limits at a price of 98. So it’s like a barrier – this barrier of limit
orders must be broken in order for the price to move. One aggressive sellers comes in – he
sends sell market order to sell 3 contracts. But you see that at the price of 98, there
are only 2 buy limits – so this barrier of buy limits is not strong enough to satisfy
this aggressive seller. So what happens? 2 sell market orders are paired with 2 buy limits
at a price of 98 and this clears all the buy limits at 98. And then, there are no buy limits
left at this price. However – there’s 1 more sell market order left to be paired. Since
there are no buy limits left at the price of 98, the market now must move lower to find
more buy limit orders. So it moves from 98 to 97. At 97, one sell market order left is
paired with new buy limit. This completes the order of aggressive seller – to sell 3
contracts. This aggressive seller therefore moved the market down, because his market
order was paired with buy limits at 2 different prices. His sell market order for 3 contracts
was paired with 2 buy limits at 98 and 1 buy limit at 97. Now notice this – the price has
moved from 98 to 97 despite there was 1 seller and 2 different buyers. However, the number
of buy and sell orders is equal – sell market order for 3 contracts and buy limits for 3
contracts in total. Now, what do you see at the price of 98? There
are no sell limit orders at this price. Do you remember that the market order doesn’t
specify the price? The price at which the market order is filled only depends on the
availability of limit orders. So where are the first available sell limits? First available
sell limits are at 99. Now, the aggressive buyer comes in and he wants to buy 1 contract
by using a market order. The actual price is 97, there are no sell limits at 98, first
available sell limits are at 99. Despite the actual price being 97, the aggressive buyer
is filled for 99 – because that’s the price at which he finds somebody to buy from. So
he moved the market up from 97 to 99, because at 98, there was no liquidity – no sell limit
orders. So the market has skipped this price and moved to 99 straight away. This is called
a ‘gap’ – the market has gapped up from 97 to 99. The aggressive buyer has got what’s
called a ‘slippage’ – this means that he bought for worse price than he was expecting. He
sent the buy market order when the actual price was 97. He would be expecting to be
filled for 98 because logically, there should be some sell limits. In reality, there were
no sell limits so the market has gapped up and he bought for 99. That means he has got
a worse price and got a slippage. So in this situation, there was 1 buyer and 1 seller.
One buy market order and one sell limit order and the price has moved from 97 to 99. And now – the final situation that we will
have a look at. A big trader comes in and he wants to buy 15 contracts. As you can see,
in the meantime, some more passive sellers have appeared and sent their limit orders
into the market. The last price is 99 – this is the price at which the most recent trade
has taken place. This is the price that the big trader is looking at when he decides to
send his order into the market. This buy trader uses a buy market order to buy 15 contracts.
By doing this, he will move the price from 99 to 103. You can see how his market order
for 15 contracts was paired – take a moment to have a look at this. So, there was 1 buyer
and many more sellers and the price has moved by 4 points. However, the quantity of buy
and sell orders was equal – 15 contracts to buy and 15 contract to sell. This is always
equal and this is how the price moves. However, in reality, such a big trader is
likely to use a limit order to open a trade – because he trades such big positions, that
the potential slippage when using market orders is very big. So, to sum it up – the price moves in relation
to market orders and available limit orders. These limit orders are like a barrier – when
this barrier is not strong enough to satisfy market orders, the price moves. However, number
of buy and sell is always equal. For example in this last scenario – the price has moved
from 99 to 103 and there were 15 buy market orders and 15 sell limit orders.

Market Prologue


For the time being, I’m going to talk about
markets in layman’s terms, no “econo-speak” allowed, and the same goes for you, too. Textbook
terms like “demand,” “supply,” and “equilibrium” are off-limits until further
notice. OK, in plain English: What two things we have
to have in order to have a market? Well, you’re going to have to have buyers, and sellers.
Why does a buyer enter into a market? First and foremost, the buyer’s number one, primary
objective is to acquire goods and services. Secondarily, the buyer wants to get the goods
and services at the best possible price; “best,” to the buyer, meaning lowest. What does this
look like? Well, there’s going to be a relationship between the product and the price, I can see
that. OK, suppose I’m a typical buyer, who would like to enter the market for, let’s
say, leather jackets. What determines how much I’m willing to pay for a jacket? My tastes,
climate in my area, my income, etcetera — there’s some maximum price I’m willing to pay, let’s
say a price P1. Is there any other price I’d be willing to pay? Well sure; I’d love to
pay less, so I’ll take any price lower than my maximum price. Do you suppose there are any other buyers
out there who want a new jacket? Well, yeah, there are probably thousands of buyers in
the market, each with his or her own willingness to pay, but hoping for a lower price. What about the sellers’ side of the market?
Why does the seller enter the market? First and foremost, the seller’s number one, primary
objective is to offload their goods and services, so that they can make some money. Secondarily,
the seller wants to sell those goods and services at the best possible price; “best,” to
the seller, meaning the highest. What does this look like? Again, you can already see
that there is a relationship between the product and the price. Well, now, let’s pretend you’re
a seller. You decide to sell leather jackets in Scottsdale, Arizona. You find that the
rents are high, the wages are high, and just to cover your costs to stay in business, you
have to charge a fairly high price. Is there any other price you’d be willing to accept?
Well, of COURSE, you’d be happy to take more money! What if another seller enters the market for
leather jackets with a storefront in say, Apache Junction, Arizona. Rents are lower,
wages are lower, and your new competitor can get his jackets cheap, out of the back of
his cousin Vinny’s truck. He can sell at a much lower price and still cover his costs.
Is there any other price he’d be willing to accept? Well, sure, just like you, he’s
happy to take a higher price. Do you suppose that there any other sellers in the market? All right, so we know it’s happening on the
buyers’ side, and on the sellers’ side, but we also know that it’s not a market
unless you have both buyers and sellers together. Because each side has a relationship between
the price and the product, we can overlap them into one diagram. So — why do we want to look at markets in
the first place? Because in our economic system, a market economy, it’s the market that determines
price, and price serves as the rationing mechanism to determine who gets the scarce product or
service and, who does not. Now that we know what competitive market –lots of buyers competing
to acquire the product, lots of sellers competing to make the sale — looks like; well, what
is “the price”? As you can see, competitive markets are messy.
From this depiction, can we tell anything about the price? What is the highest price
we’d ever see in this market? The maximum price in the market is going to be determined
by the upper boundary buyer. What is the most that any buyer is ever willing to pay? If
the price ever goes higher than this, then there would be no buyers, and therefore no
market. What’s the lowest price we’d ever see? The
minimum is determined by the lowest-cost seller; no sellers can survive at a lower price than
that. So, as of this moment, we don’t know “the” price, but we have a limited range
of possible prices, and a hunch that “the” price is probably somewhere in the middle,
where most of the action is going on. NEXT TIME: a market experiment to find the
price TRANSCRIPT00(MICRO) EPISODE: MARKET PROLOGUE

4 P’s of Marketing| Marketing Mix |Philip Kotler |Product-Price-Place-Promotion| Hindi


Hello friends,my name is Sahil Khanna,you are watching Intellectual Indies and today we will talk about 4P’s of marketing We also call it as “Marketing Mix” So what is 4P’s of marketing? This is basically 4 things : Product,Price,Place and Promotion Mixture of these 4 things is known as 4P’s of marketing These 4 things decides success or loss of any product What is your product,what are its varieties,sizes? How is th packing done?It is of which brand and how is the branding done? All these comes under Product Second thing is Price What is the price of your product? How much discount are you offering? What is your Payment term? All these comes under Price Third thing is Place Where are you selling your Product? Where is your inventory? What is your supply chain network? What is availabilty of your product? At how many places your product is available? All these comes under Place So 4th P is Promotion How are you taking your product to the target audience? How are you telling your target audience that you sell this product? These are the “specifications” of your product. All these comes under Promotion You can do this through ads,PR or direct marketing To understand all these things,let’s take example of JIO I will not go into the history of what have they acquired or what have they done I will discuss about its Product-Price-Place-Promotion Their Product is 4G sim Pricing is free in its current staage In future there may be a plan worth 150 providing unlimited STD calls,100 messages,1-2GB internet which will me more than sufficient So this the way of their Pricing earlier they were available only at Reliance Digital stores. Now they have also started Home Delivery If you are buying any product from Amazon,it shows that you can buy JIO sim with this This is their Place module This is their Supply chain network By which way they want to reach the consumers? So how have they done Promotion? Now there are TV ads about JIO,but earlier there were no TV ads about this,but still everyone had JIO sims They added their “marketing budget” in “pricing” which means they made their product free and added the cost of the product to the marketing budget due to which they got mouth publicity and they were top story the news “JIO,JIO,JIO” was everywhere They have not done any type of promotion,neither TV ads or anything. But still it is a successful product That was their Promotion strategy So guys,this topic ends here. I hope you understood the topic If you liked the topic,please like,share and subscribe. Thankyou

Bollinger Bands Strategies THAT ACTUALLY WORK: Trading Shortcuts With BB Indicator


Bollinger bands are one of the most popular
technical analysis tools implemented in today’s trading environment. As the name implies, Bollinger bands refer
to the bands (or price channels) placed on a chart to represent a volatility range. Bollinger bands consist of a set of three
bands drawn in relation to price: there is the 20-period moving average in the middle,
with an upper and lower band of two standard deviations above and below the simple moving
average. Bollinger bands use a statistical measure
known as the standard deviation, to establish where a band of support or resistance levels
might lie. This concept is also known as a volatility
channel. A volatility channel plots lines above and
below a central measure of price. These lines, also known as envelopes or bands,
widen or contract according to how volatile or non-volatile a market is. Bollinger bands® measure market volatility
and provide lots of useful information, including: Trend continuation or reversal
Periods of market consolidation Periods of upcoming large volatility breakouts
Possible market tops or bottoms, and potential price targets Bollinger bands are a trend indicator that
detects the volatility and dynamics of the price on the market. The bands contract when the market volatility
is low and expand when volatility increases. During periods of low volatility, the bands
are narrow, while during periods of high volatility Bollinger bands expand drastically. The upper band shows a level that is statistically
high or expensive The lower band shows a level that is statistically
low or cheap The Bollinger bandwidth correlates to the
volatility of the market For a technical point of view, trading near
the outer bands provides an element of confidence that there is resistance (at upper boundary)
or support (at bottom boundary), however, this concept alone does not provide relevant
buy or sell signals; all that it determines is whether the prices are high or low, on
a relative basis. So, the general consensus is that when the
price reaches the upper band it is considered as overbought and when price approaches lower
band it is considered oversold. The Bollinger bands have a default setting
of (20,2) . When using trading bands, it is the price action as it nears the edges of
the band that should be of particular interest to us. Now, regarding standard deviation of the Bollinger
bands. What is it? The standard deviation is basically a number
expressing how much the values of the price differ from the mean value. Prices will distribute around the simple moving
average: Around 65% of price action is contained within
a standard deviation of 1 of the Bollinger bands
Around 95% of price action is contained within standard deviation of 2 of the Bollinger bands;
Almost 99% of the price action is contained within standard deviation of 3 of the Bollinger
bands. Ok, how to use this information? If you decide to back test Bollinger bands
and play with its inputs, you can adjust the value of the standard deviation. If you lower it, you will see the price leaving
the bands often, probably offering a lot of noise. However, if you increase it to 3, you will
realize that the price will leave the band rarely, and might be better to find dynamic
zones of support and resistance. So, lower settings on the Bollinger bands
will generate more trading signals, but will also increase the number of false signals,
as the price movement will exit more often from the bands. On the other hand, a 2.5 standard deviation
Bollinger bands or even a 3 standard deviation will generate fewer, but high-probability
signals. Now, I prefer to trade with the odds in my
favor. So, if a standard deviation of 3.0 will offer
me around 99% certainty that the price won’t exit the Bollinger bands, then I will be interested
to trade only with these settings. How to trade Bollinger bands? The use of Bollinger bands varies among traders
depending on their overall trading strategies, styles and goals. When using Bollinger bands, many define the
lower and upper bands as price targets. Some buy when the price touches the lower
band and exit when the price touches the moving average in the center of the bands. Others prefer to sell when the price falls
below the lower band or buy when price breaks above the upper band. The upper and lower bands can act as dynamic
resistance and support levels, as traders generally avoid buying when the asset price
hits the upper Bollinger band, respectively avoid selling whenever the price reaches the
lower Bollinger band. In a sideways market, when there isn’t a
clear trend on the chart, Bollinger bands provide very good support and resistance,
as most traders believe that there’s high chance of prices staying within Bollinger
bands. Studies have shown that the penetration of
Bollinger bands with a standard deviation of 3 occurs rarely. The rest of the time prices fluctuate within
the Bollinger bands, and often price returns to the middle of the bands. In this way Bollinger bands seem to act like
rubber bands that can only stretch so far before snapping back to the middle. The upper and lower ranges of the Bollinger
bands, which are created by the 2 or 3 standard deviation lines, create the boundaries of
price. Since there are greater odds that price will
be contained within the bands instead of penetrating them, one of the surest and most common ways
of trading the bands is to buy when prices near the lower band and sell when prices near
the upper range band. But not blindly. We talked before about price action. This strategy is suited in non-trending markets,
when there isn’t a clear direction. Even more, when the bands are parallel, the
signal is even more powerful. So we want to sell at the upper bb and buy
at the lower bb, when the bands are parallel, and preferably, if we see addition confirmation
of a support or resistance. Here are a few examples of Bollinger bands
signals during ranges…… Also, you could take signals during trends,
but only in the direction of the main trend. Why is that? Just because prices hit the upper or lower
Bollinger does not necessarily mean that it is a good time to sell or buy. Strong trends will “ride” these bands
and wipe out any trader attempting to buy on the “low” prices in a downtrend or
sell on the “high” prices of an uptrend. In fact, price will be making new highs in
an uptrend and new lows in a downtrend, hitting and exceeding the bands, quickly taking out
the stops on trades taken directly on the bands. So, instead, we look to sell the upper bb
during downtrends, meaning when the price is making lower lows and lower highs, and
buy the lower bb in uptrends, when the price is making higher highs and higher lows. Practically we look for pullbacks or corrections,
but in the direction of the trend, we don’t chase reversals. Here are a few examples of Bollinger bands
signals during trends….. As we previously mentioned, Bollinger bands
indicator measures the volatility on the market. The wider the band, the more volatility it
has. A narrow band means indecision on price movement
and when this happens, it is almost always guaranteed that markets are about to move
either up or down. Also, if the market has recently experienced
a lot of volatility and the bands are far apart, this is a sign that the market will
settle down and trade into a range in the near future. Another Bollinger bands strategy that is relatively
simple to implement is known as a squeeze strategy. Squeeze refers to the narrowing of the trading
range and implies a potential breakout. It happens when the price starts shifting
sideways in a tight consolidation. You can visually identify when the price is
consolidating as the lower and upper bands get closer together on the chart. It means the volatility of the particular
asset has decreased. After a period of consolidation, the price
usually tends to make a larger move in either direction, ideally on higher volume. Expanding volume on a breakout is a sign that
traders are expecting that the price will continue to move in the breakout direction. The longer it moves within this narrow band,
the more likely the market is eventually going to penetrate these bands and continue on in
the direction of the breakout, especially if this event occurs in the direction of the
previously established longer-term trend. Timing is everything, however, and just we
don’t know how long the squeeze will last. How to identify the breakout? Look at the hooks of Bollinger bands. We want to see the upper band pointing up
and lower band pointing down. If the bands remain flat or just one band
hooks while the other does not, the breakout isn’t there yet. However, if upper band is rising while the
lower band is falling, after a period of consolidation and tight range, this signifies that a potential
explosion in price action is about to occur, in the direction of the candlestick pushing
against the band. The more vertical, the stronger the potential
move. Here are other examples of valid Bollinger
bands breakouts. If you got any value from this, make sure
you subscribe, hit the bell icon so you’ll be notified each time we upload and leave
us a like to show your support. Until next time.

Changes in Market Equilibrium


What I want to do
in this video is think about how supply and/or
demand might change based on changes in some
factors in the market. And then think about what that
might do to the equilibrium price and equilibrium quantity. So let’s say at
some period, this is what the supply
curve looks like and this is what the
demand curve looks like. And then all of a sudden,
this thing happens. A new disease-resistant
apple is invented. What’s likely to happen
for the next period? Well, a new disease-resistant
apple being invented, this is something that
clearly impacts the growers, clearly impacts the suppliers. All of a sudden, they’ll
have fewer apples succumbing to disease. And so they will be able
to produce more apples. So at any given
price point, this will shift the
quantity supplied up. So at any given
price point, it will shift the quantity of
apples supplied up. Or you could say that
the entire supply curve is shifted to the
right, or supply goes up. And let me draw
the entire curve. And obviously, if now we have
disease-resistant apples, even our minimum price to start
producing apples is lower. Now, when we had the supply
curve shift in this way, when it shifted
to the right, what happens to the
equilibrium price? Well our old equilibrium
price was right over here. Our new equilibrium price–
so this is the old one. And this is our new
equilibrium price. We’re assuming that demand
has not changed at all. So this is our new
equilibrium price. So our new equilibrium
price is lower. So the price went down. And you don’t have to– you
could have probably reasoned through that before,
taking an econ class. But this way, at least you
have some way to think about it and think about how the
curves are changing. Now, let’s think
about this scenario. So this is before. So in all of these
examples, the graph is what happened before
the news came out, or the event came out. So this is before. And then a study is released
on how apples prevent cancer. So what is that likely to do? Well, no one wants cancer. And so more people are going
to be eager to have apples. This will change
customer preferences. They will prefer
apples even more when they’re at the supermarket. So this is clearly affecting
demand customer preferences. And so at a given
price, people will want– they will demand a
higher quantity of apples. The quantity of apples demanded
at a given price will go up. So the demand curve
will shift to the right. Or you could say, the
demand would go up. So that’s the new demand curve. So here, demand goes up. And let me write it over here. In this situation,
supply went up. Here, demand goes up. And what happens to the price? Well, this is our old
equilibrium price. This is our new
equilibrium price. The price clearly went up. So the price went up. And actually over here, let’s
think about the quantity too in this first situation. This is our old
equilibrium quantity. This is our new
equilibrium quantity. Quantity went up,
which makes sense. You have fewer apples
dying, price went down, more people want to buy them. Here, price went up, and
what happened to quantity? Quantity– this was our
old equilibrium quantity. This is our new
equilibrium quantity. Quantity also went up. More people just
want to buy apples. They don’t want to get cancer. Now let’s think about these
scenarios right over here. The pear cider industry
launches an ad campaign. And for the sake of
this, let’s assume that the same growers who grow
apples can also grow pears. That makes it interesting. So you have a couple
of interesting things. By launching this
advertising campaign– we’re going to assume
it’s a good advertising campaign– this clearly will
make demand go up for– sorry, it’ll make demand go up
for cider, for pear cider, relative to apple cider. Most people, when
they think of cider, they think of apple cider. Now all of a sudden,
pear cider comes out. It’ll make demand for
apple cider go down. So this is apple cider
demand will go down. Now, if apple cider
demand goes down, the apple cider producers are
going to demand fewer apples. So this is going to mean that
apple demand will go down. At any given price point,
apple demand will go down. So apple demand, the demand
curve, will shift to the left. Or I should say at
any given price point, the quantity demanded
will go down. And so the entire demand
curve, the entire relationship, will shift to the left. Now, that’s not all
that might happen. Because if you think about
it from the suppliers point of view, and I don’t know
if this really is the case, but let’s assume that the
farmers who grow apples can also grow pears. Well, they might say,
well, now that there’s more demand for pears,
they’re doing this advertising campaign, I want to– and
probably the price of pears has gone up– they
might say, well, I’m going to devote more of
my land to pears and less of my land to apples. And so the supply of apples– so
apple supply– want to be clear here that we’re talking about
apple– the apple supply might go down. So it’ll also shift to the left. So they’re both
shifting to the left. Now what is likely
to happen here? So the demand went down
and the supply went down. They both shifted to the left. Well, here the way I drew it,
this was our old equilibrium price, this is our
new equilibrium price. It actually looks the way that
I drew it right over here, that it did not change. The equilibrium quantity
definitely did change. So let’s see, this is our
old equilibrium quantity. This is our new
equilibrium quantity. This clearly, the
quantity, went down. It was a bad day for apples. But the price didn’t
change, because, at least in the example, we assume
that the farmers actually also produced fewer apples. It turns out, I could have
drawn this in multiple ways. And actually, let me draw
it in different ways here. So the quantity
definitely– so let’s think about other scenarios. Let me draw it
slightly different. Let’s say that the supply goes
down even more dramatically. So let’s say the supply shifts
all the way– the supply shifts really far back. Now, what happened? Well now, our
equilibrium price– because the reduction in
supply was kind of more extreme than the reduction in demand. And it really depends on how the
curve shapes and all of that. The main thing is
to reason through it or to actually see what
the actual results are. But in this situation, all of a
sudden that the price went up, but the quantity
definitely still went down. So in this case, the one
thing that you’re always going to be sure of
is that the quantity will go down but
the price went up. Because this effect– the
supply went down much more than the demand did. And so the price went up. Now I could have done
another scenario. I could have done another
scenario where maybe the supply barely budged or maybe the
demand went down dramatically. Let me draw it where the
supply barely budges. So maybe the supply, it only
gets shifted a little bit to the left. So maybe the supply
curve looks like this. Now all of a sudden, once again,
quantity definitely goes down. So in all of the scenarios,
the quantity will go down. But I’ve just done three
scenarios where the price could be neutral, the price could go
up, or the price could go down. So you actually
don’t know what is going to happen to the
price based on this. You would actually have to
look at the actual curve and see what the new
equilibrium prices are. Now let’s look at this one. The apple pickers unionize and
they demand wage increases. So this is an issue
for the suppliers. So all of a sudden,
one of their inputs, one of their costs of
production, which is labor, has gone up. So if their cost of
production has gone up, now at a given price point,
they are less profitable, less willing to produce apples. So at a given price
point– so we’re talking about the suppliers–
at a given price point, they will supply
a lower quantity. So this is going
to lower supply. And when you lower supply,
what’s going to happen? Well, your
equilibrium quantity– this was our old one, this
was our new one– equilibrium quantity definitely goes
down, the quantity went down. And what happened to the price? We’re assuming nothing
changes to the demand. So this was our old
equilibrium price. This is our new
equilibrium price. It went up. Quantity went down,
and price went up. And I encourage
you to– well one, I should have told you
this at the beginning, too. You should have tried to do
these yourself and then see what I had to say
about them– but I encourage you to try this out
with different situations. Think of situations
yourself and even think about different markets
other than the apple market.

Commodity Markets: Cash Markets and Forward Contracting | Market to Market Classroom


Farming is full of risk. In any given year,
growers face numerous weather perils ranging from droughts and floods to hail storms, wind
storms, tornadoes and the occasional hurricane. Even when producers escape those extremes,
growing conditions must be favorable at critical periods in the growing cycle, like planting,
germination, pollination and so on. And even after the crops are grown and harvested
producers still encounter risk. But the greatest risk of all may not be associated with producing
commodities, but in marketing or selling them. Two methods that are commonly used to sell
commodities are cash marketing and forward contracting. They look like this. Farmer Smith
has always marketed his crop according to his father’s old adage, don’t sell something
you don’t own. So he has built plenty of storage bins to hold all that he produces each year.
And he usually sells his grain several months after harvest on price rallies. Smith’s practice
of storing his entire crop assures he won’t be forced to take the harvest price, which
typically is among the lowest of the year. He can store the crop until the price reaches
the point where he wants to sell it for cash, usually at a local elevator. By storing his
grain he hopes for a favorable price sometime in the future. He has not entered into any
kind of contract to deliver the grain at a certain time or at a certain price and his
primary risk is that prices could move lower while he is holding his grain.
Farmer Jones also stores most of his crops on the farm. But for some of his crops he
establishes what is known as a forward contract with his local elevator. A forward contract
is an agreement to deliver a certain amount of a certain commodity at a certain time in
the future. Because no one really knows whether prices will go up or down, a forward contract
locks in a price that is higher than the current cash price. Jones’ strategy of forward contracting
with his local elevator guarantees him a known price for some of his crop. But the agreement
restricts his flexibility to change his mind and sell directly into the cash market. His
primary risk is if prices are higher at the delivery date. He is still obligated to deliver
the contracted grain at the lower price he agreed to earlier.