Level 1: FoundationInteractive
How Markets Work
15 min readUpdated Mar 2026
Quick Check
Supply and demand determines:
A bull market is characterized by:
Supply and demand determines:
A bull market is characterized by:
A is an organized marketplace where buyers and sellers trade shares of publicly listed companies. You need to understand the basic machinery before placing your first trade.
A stock price is determined by what buyers will pay and what sellers will accept. This is at work.
Every stock has two prices at any moment:
When a bid matches an ask, a trade happens. That last trade price is the "current price."
Prices rise when aggressive buyers outnumber sellers: positive earnings, analyst upgrades, sector tailwinds, bullish sentiment.
Prices fall when sellers are more aggressive: disappointing results, negative news, broader market fear, institutional selling.
Key Insight
You do not need to predict WHY a stock moves. You need to identify WHEN a move is starting. Price action and technical analysis (Level 2) give you those tools.
As a swing trader holding days to weeks, you are insulated from HFT and day-trading noise. Your real competition is other swing traders and the trailing edge of institutional moves, a favourable playing field.
The first and last 30 minutes of each trading day see the highest volume and volatility. Many swing traders place orders before the open using limit orders, or wait until the opening noise settles (15-30 minutes).
Extended hours (US pre-market 4am-9:30am, after-hours 4pm-8pm ET) have lower volume and wider spreads. Use them to observe overnight reactions, not to trade.
For orders, your order sits in the book until a matching seller appears. That might take seconds, hours, or never happen if your price is too far from the market.
Key Takeaways
Try This
Check the bid-ask spread on a large-cap stock (like AAPL.US or BHP.AU) versus a small-cap stock. Notice how much wider the spread is on the smaller stock. That is the cost of lower liquidity.
Disclaimer
This educational content is for informational purposes only and does not constitute financial advice. Past performance is not indicative of future results. Trading involves risk of loss. You should consult a qualified financial advisor before making investment decisions. Swingfolio is a trade journaling tool, not a financial advisory service.