Understand Movement of Foreign Exchange Market

Maybe you have wondered what causes price movements with your forex charts? Or why the market usually retraces sooner or later even in clearly recognized trends? Or better still, why some retracements eventually become strong enough in order to create a whole new craze? This article is aimed at answering the questions previously mentioned. Notice that a good idea of market mechanics will definitely enable you to as a trader by means of fine- tuning your entry, exit, and stop decline levels, thus yielding far better trading results.

Before we look into the topic, I will like to explain four major reactions that cause price movements, and in what direction each one effects their movement in the market.

Buyers entering the industry: definitely, buyers entering the market will create a bullish response, thus causing upward price movement.

Sellers entering the market: in a similar manner, there would be the downward price movement when sellers enter the market thereby creating a bearish response.

Buyers leaving the industry: when buyers are leaving the market, it gives a identical reaction as sellers entering the market. Therefore, this will spark a downward price movement.

Sellers leaving the market: sellers leaving the market will produce a bullish reaction, thus creating upward price movements.

At every stage while the market will be open, a combination of some or all of the above is occurring. This means that the final price movement you actually see on your chart would be the resultant of the market vectors in the above list. For example, if i am in an uptrend, and therefore are spotting bullish market response, it means that we have now more net buyers than sellers which might be causing the resultant further up movement. Now, as the swing tops out, those buyers who have been scoring profits all along will begin to bank their profits, thus buyers leaving the market. When this is occurring, it causes a downward price movement as mentioned above which we time period retracement. Also, some sellers who could actually predict the end in the bullish swing will furthermore jump in thereby augmenting the downward retracement. As price retraces with a bullish confluence below, these sellers, who entered over the rest the bullish swing, will begin to take their profits( sellers leaving the market), and much more buyers will enter the market hoping to continue while using trend to the upside- the typical result being a internet bullish market reaction. The other is the case for any bearish trend.

So, what are the results during a trend adjust? Most trend changes are usually signaled by fundamental examination or by bigger people massively closing out portions of these position which are generally huge enough to bust levels of confluence in the last direction of the craze. When this happens, feeling sets in, and other traders around the world will be keen in taking positions resistant to the previous trend. This action increases the net volume in the modern direction, thus creating a whole new trend.