Why are price and cost not the same thing? Traders should understand.

Here's a question that frustrates half of the traders: why does an asset skyrocket and then plummet like a stone? The answer usually comes down to supply and demand. Yes, that's true, but it's only half the story.

What is really happening in the market

In economics textbooks, we are told that price reflects value. On the exchange, it is different – the price here resembles more of a toy in the hands of speculators. It is a tool that attracts crowds of investors and traders rather than a fair reflection of actual value.

Look at a real example: before the New Year, green peas cost $1, but a week before the holiday, it rises to $1.20. Why? Demand increased, sellers are pushing to the maximum. After the holidays – bam, back to $1. The price returned to cost.

Rollback to cost - this is the essence of the market

The same thing happens with crypto and stocks. Buyers create a price impulse, the price shoots up, but the value of the asset does not break along with it. When participants realize that they overpaid – a pullback begins. This pullback is exactly to the level where the asset has real value.

How to find this very cost?

I use two proven tools:

RSI (14 period ) – the mark of 50 indicates the neutral zone, where price and value approximately coincide.

Bollinger Bands – the middle band (MA) acts as an anchor for price. The price may bounce off the upper or lower band, but sooner or later it will return here.

Understanding the difference between price and value is fundamental for risk management. When the price moves far from the value, the opportunity to profit from a pullback becomes real.