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The first law and most important law is supply vs. demand. The way this law is identified is by the close of the bar in relation to the range of the bar and in relation to the close of the previous bar. For example, if we are looking at daily bars, then a close near the top of the bar and above the prior day close, would tell you that demand overcame supply. The only way for a stock to go up is if the strength of demand overcomes the strength of supply. The close is the main clue to let you know who is winning the battle between demand and supply. If the close was near the low of the bar and the close was below the prior day close, then supply won the battle. If the close is in the middle of the bar and there is a small change in closes between today and the prior day then, we can conclude that demand is equal to supply. Our job is to analyze charts to locate the clues to determine if demand is overcoming supply therefore price should rise or if supply is overcoming demand therefore price should fall. See the following chart:
The second law and next in importance is effort vs. result. The way this law is identified is the relationship of the range of the bar to its volume and time to some extent. The rise or fall in price should be in harmony with the effort (i.e. volume). For example, say a stock is able to go up 3 points with 1,000,000 shares of volume on day one, we should be able to conclude that it took 1,0000,000 shares of effort to give us a 3 point upside result. Say on the next day, the stock rises 1 point with 2,000,000 shares of volume, we should be able to conclude that now it is taking more effort(2,000,000 shares vs. 1,000,000 shares) to move the stock less(1 point vs. 3 points). This action is giving you a clue that supply is starting to overcome demand and the stock price might be getting ready to pullback very soon. If on the third day, the stock is unchanged with 5,000,000 shares of volume. With so much effort (5,000,000 shares), we should have concluded that the stock should move a great deal but it doesn't. This action is giving you a red flag that the move is possibly over. What about if a stock goes up 5 points with only 200,000 shares of volume? We can conclude that with such a big price move with so little effort, the supply has probably dried up. Otherwise, how else could a stock move up so much without demand unless supply is totally absent. The same law, along with supply and demand, is also applied to time. If a stock goes up 10 points in 2 days, then it falls 5 points in the next 4 days, then this action is telling you that it only takes 2 days of upside effort to achieve a 10 point result then 4 days of downside effort to achieve a 4 point pullback. We can conclude that this action is bullish.
In the past few days the volume of ICE is dried up but price is still inching up. The demand of it is still
very strong.
The third law is cause and effect. This law is identified by the width of the trading range. The longer the trading range (i.e. the cause) is, the bigger the effect (i.e. the markup or markdown phase).
Goog has been in the trading range for more than 4 months and the effect is really big.
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