Every trade consists of two participants. The seller requires a buyer and vice versa. Actually trades are formed by orders, which market participants put on their terminals. A seller, wishing to sell shares, puts in a sell order, known as an ASK. A buyer, wishing to buy shares, puts in a buy order, known as a BID. Certainly, the seller wants to sell at the highest possible price, while the buyer wants to buy at the lowest possible price - this is the first important point in understanding trading flow. Therefore the spread is formed between bid and ask - this is the second important point. The third important point derives from the first two: no trades will happen - the buyer holds onto their cash and the sellers hold on to their shares - unless someone takes the initiative and changes their position. By placing the order at ask price, the buyer is expressing a desire to purchase the shares at the higher price. By placing the sell order at bid price, the seller is expressing a desire to sell the shares at the lower price. An adjustment of the traders' primary interests indicates the dominating trend.

Let's look more closely at the reasons compelling them to do so. Imagine that the dominating trend is to sell. The total number of shares to sell exceeds the total number of shares to buy. Sellers are competing amongst themselves to get their orders filled. Instead of waiting for a buyer to fill their ask order the seller could choose the current available bid order and bypass the other sellers.

It is as true when the dominating trend is to buy. Buyers should fight to get orders filled and if getting a stock is really important for the buyer, it is better to choose an ask price while your competitors are still sitting at their bid orders. The same happens, for example, at an auction, where bidders raise the price by bidding against each other.

The following statements can be considered as additional influencing factors:

1. The Psychological factor. The trader has no knowledge of what will happen next. He watches the stock, sees the price, makes target projections, calculates possible benefits, and at any time will decide to open or close a position. Execution is the most emotional stage of trading. When the calculations are done, the most important thing is to execute the trade as fast as possible. The only way to do so is not to bargain for the specific price but to be flexible and select the available market price - bid for sell and ask for buy order.
2. Narrow margin between bid and ask. 1 to 5 cents is irrelevant to the emotionally induced fear of missing the trade and the loss of possible profits. 500 shares of $20 stock costs $10,000 and a 5 cents margin has a summary value of an additional $25 - that is only 0.25%.
3. Big orders. Trades more than 10,000 shares (known as block trades) are always previously discussed between broker and market maker and most likely will be executed at the ask price or significantly higher for buy orders and at the bid price or lower for sell orders.
4. Trading systems. "Point and Click" trading platforms or charting software often have preinstalled settings to execute automatically sell orders at the bid price and buy orders at the ask price.

As you can see, to get the order filled and the trade executed, in most cases the trader should choose the available market price: to fill selling orders choose the bid price and to fill buying orders choose the ask price. Analyzing the flow of the trades and comparing that with the actual bid/ask values we can outline the direction of supply and demand. Knowing the direction we can predict the direction of the trading, and this way we can be ahead.

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