Investing

Uncover the Fair Value of Stocks

What you see on the charts is the result of supply and demand principle. If demand exceeds supply, the price will go up & if supply exceeds demands, price will fall down.

But what if supply equals demands, In this scenario the price will not move in any direction, instead it will begin to accumulate or consolidate, this is what we call a fair value of price, or an area where both buyers and sellers agree that security or instrument is correctly priced.

As you can see in the chart, First upwards move at the beginning, indicating demand exceed supply for this security.

Then the market has met its purpose to facilitate trading between buyers and sellers. This area is called as a fair value of price where neither buyers nor sellers are interested to enter into the market.

Then the downwards move, indicating supply exceeds demand which means sellers are entering into the market aggressively.