A friend asked me to explain the concept of equilibrium within the market. I made this illustration to show how equilibrium is the balancing point between buyers and sellers and what happens when imbalance occurs towards buyers or towards sellers.
When price is at equilibrium, the market is in a neutral state. It is an area of agreement between buyers and sellers of fair pricing. The market is undecided on whether price should go higher or lower. This is typically found in ranging market conditions and can be a dangerous place to trade.
Let price reach discount pricing or premium pricing and trade back towards equilibrium. Attempting to trade from equilibrium towards discount or premium is a recipe for blowing your account.
In short, don’t diddle in the middle.