How to determine a deficit or surplus?

A deficit is a market condition when there is a shortage of goods at the nearest price, while there is demand. In other words, when demand exceeds supply at the nearest price.

A surplus is a market condition when there is very little of a good at the nearest price and there is plenty of supply. In other words - when supply exceeds demand.

How do you know if there is or has been a deficit?

If the price is rising or has risen, it means that there is or has been a deficit.

And if the price is falling or has already fallen, it means that there is or has been a surplus.

There are no other unambiguous ways to understand.

Why is that?

A deficit or surplus is formed by both limit orders and market orders.
As we remember, only market orders move the price by executing against limit orders.

As soon as the deficit is formed, the price starts to move, as no one is selling enough, and participants keep buying, moving the price upwards.

If we have ‘somehow’ understood that there is going to be an uptrend here, we will want to make money, and to do that we need to buy. When we buy, we will create a deficit with our money. And the more money we have, the bigger the deficit will be created, and the faster the deficit condition will start to raise the price higher.

It’s a self-fulfilling prophecy.

We believe that it will be rising - we buy - buying creates a deficit - deficit leads to a price rise - we get a fulfilled forecast.

This is how it works in any market, because this is the law of the market - it is unbreakable and unshakeable. Even if the central bank of some country restrains the exchange rate, it does it according to exactly the same principle. Except in cases when people are shot for exchanging currencies.

Based on the above, it is easy to see where there was a deficit and surplus. You can clearly see everything on a price chart.
But it is impossible to make money at the moment when you see it.

Therefore, initially the trader’s task is to find a coin with signs of forming deficit or surplus.

Thus, the task of making money in the market at this stage should be divided into:

• the stage of searching for coins
• the stage of deeper analysis of the coin

Note: within this post, we will only give a brief explanation and a path of where to get further, more detailed instructions for each of the stages.

Let’s look at the general direction, with step-by-step instructions at the end.

The coin search stage is carried out:

• by simple signs (strategy from Aires)
• searching of possible variants
• initial evaluation with the help of a cluster chart.

The in-depth analysis stage involves:

• evaluation of different types of data on the cluster chart
• evaluation of the heat map in several modes
• evaluation of aggregated indicators by deals and by limit orders
• evaluation of additional indicators

Where to start (step-by-step instructions):

• You need to understand what the signs are of an emerging surplus or deficit (see 6 steps from Aires)
• Move on to the practice of finding ideas
  – either using the method suggested by Aires (through the screener)
  – or with the help of a pair tree (article on how to search on the blog).

If it is difficult or not clear, we recommend you to take the basic level of training at the University

If you want more explanation from a real person, you can see if the online course from the founder of Resonance is available, if not, there may be a video course available.

The market is simple and logical, don’t make it complicated - or it will get complicated.