I've noticed that many people confuse two basic concepts in the market, even though they fundamentally affect how we read charts. We're talking about the difference between the price and the value of an asset.

In economics textbooks, we're taught that the price reflects the value of a product. Makes sense, right? But on the exchange, everything works differently. Here, the price becomes more of a tool for attracting capital than an honest reflection of true value. Sometimes you see the quote soaring to new highs and then dropping just as sharply. It creates the impression of chaos, but in reality, a quite predictable mechanism is at work.

The usual explanation sounds simple: the price goes up because there are more buyers, and it falls because there are more sellers. Yes, that’s true on the surface. Demand indeed pushes the price up, supply pushes it down. Every purchase of an asset nudges the quote higher, since demand always drives price movements. Let me give an example from real life: before the New Year holidays, everyone saw how popular products became more expensive. Canned green peas usually cost a dollar per can, but a week before the holidays, sellers raise the price to $1.20. Why? Because demand suddenly spikes, and they want to maximize profits during this period. But when the holidays end, sellers are forced to lower the price back to a dollar because demand drops.

From this example, you understand what the real value of an asset is. Value is its fair worth, which remains relatively stable. Price, on the other hand, is what we see right now on the screen, influenced by current buyers and sellers.

Under pressure from traders, the price can jump up or down so sharply that the value simply can't keep up. A gap occurs. And when the price reaches an extreme, participants lose interest in buying or selling at that level. Then a correction happens — the price returns to its fair value.

How to find this value on a chart? I use two tools. The first is the RSI over 14 periods, where a level of 50 indicates roughly the fair value of the asset. The second is Bollinger Bands, where the middle band indicates the value. These indicators help identify when the price and the value diverge and suggest where a correction might occur.