Forex Market: What causes price movements in the currency market? Or, why the market retraces at some point, even the clearly established trends? Or better yet, why some setbacks eventually become strong enough to form a new general trend? The aim of this article is to answer all these questions. Undoubtedly, a good knowledge of the mechanics of the market will help you adjust the level of entry, exit and stop loss levels, thus producing better business results.
Before delving into the subject, I would like to explain four main reactions leading to price movements and in how each affects the market movement. Buyers entering the market: definitely buyers entering the market will create a bullish reaction, which causes the upward price movement. Vendors enter the market: when sellers come into the market a bearish reaction is created. The output of buyers: when buyers are leaving their positions, similar to the entry of vendors reaction. This will cause a price movement downward.
The output of vendors: vendors exiting the market will create a bullish reaction, causing upward price movements.
At each time point, while the market is open, a combination of some or all of the above is occurring. This means that the movement of the final price on the graph is the result of market vectors mentioned above. For example, if we are in an uptrend, it means we have more net buyers than sellers that are causing the upward movement. Now, as the swing reaches its peak, buyers who have been scoring benefits will begin to deposit their profits, so buyers out of the market. Thus a movement downward price occurs. In addition, some vendors were able to predict the end of the upward swing also jump, increasing downward recoil. When prices redrawn bullish confluence, sellers, who entered the top of the upward swing, they begin to take your profits (sellers out of the market), and more buyers enter the market hoping to continue the trend bullish. The downward trend is the opposite.
What happens during a turnaround? Most trend changes are signaled by fundamental analysis or by large investors who massively close their positions, which are usually large enough to break the levels of confluence in the direction of the previous trend. When this happens, the excitement is established, and traders around the world are willing to take positions against the previous trend. This increases the net volume in the new direction, creating a whole new trend.