«If the market moves in the direction of some kind,
the probability of trend continuation is always higher than the reversal»
Hello.Surely you are not just asking the question: "Why is the price on the graph move?" After all, there is a seller, a buyer, they made a deal - everyone is happy.Why would the price rise or fall?After all, if you buy in the store the bread, it does not make the price of bread to rise.What's the secret?Or is it part of a world conspiracy?What we hide from brokers?
No doubt you have heard the good old adage "Trend - your friend."Have you ever wondered why the forex trend following strategies are working, and why trade in the direction of the trend is so universally recognized and accepted method?
The reason is simple.The trend is likely to continue, rather than stop.Once the movement has begun, it is easier to continue its existing direction than to stop or, even more, to turn around.This is one of the axioms of trading.
We give this phenomenon are different definitio
So why prices move?
To answer this question, we must first consider what the price moves in the first place.Once we understand what drives the quotation, we will immediately be able to understand why a trend is developing.
The Forex market is a typical auction market.Think about a traditional auction, where you, for example, trying to buy a picture.Originally exhibited low price, then it gradually grows higher and higher, as people make more and higher rates.The prices that you see is the price at which someone is "ready" to buy or sell, and these prices without changing the transaction or any buying and selling.
prices that we see on our charts represent the supply and demand of the application.These prices are liquid, and they are offered by market makers.
Thus, for the price change needed to happen corresponding change in these applications demand and supply.This can happen in two ways.
First of all, the bank - the liquidity provider - can simply change their application.Imagine, they initially say they are ready to sell our assets at the price 1.32400 (bid), and then 30 seconds later they change their mind and say that they are actually willing to sell it to us at the price of 1.32450.In this case, the price just jumped 5 points.It was not made any transaction, no one bought and not sold.Just a market maker change the price of its offer.
second way, defines the movement of the price - is when someone absorbs market liquidity.On our charts, we see only the best prices Bid and Ask on the market, but in fact there is a large pile of other applications of supply and demand on both sides of the market prices for these or other amounts for which other banks and market participants are willing to buy from us orwe sell the asset.
If we assume that there is a best deal for the price 1.33373 on total gross assets 1 000 000 USD, then, if a trader comes in and buys back the asset at 1 000 000 USD for that price, it consumes all available liquidityat a given price, and the proposal will be removed.In this case the next best offer on the market will be worth over them at the price 1.33377.Thus, in this example, the hops value 0.4 points.
Thus, in this second embodiment price movement is carried out thanks to the consumption of liquidity by the demand for it on the part of the buyer .
Now that we know how to change the price, we can try to understand why a trend is developing.
So where trends come from?
Let's say that you and I both speculators, and I want to buy 100 000 USD, or 1 lot, the currency pair EURUSD, and you want to sell 100 000 USD, or 1 lot, the same currency pair.
my order to buy, consume liquidity in the offer price and your sell order, consume liquidity in the price of applications demand (Bida).In this situation, if the liquidity in the market was equivalent to both sides, we would cause the expansion of the spread.But in which direction the price is really completes its movement depends on the difference in amounts of liquidity on both sides.
Suppose that a bank offers the best price BID amount of an asset 500 000 USD on your side of the market (sellers on the side), and the other bank is bidding volume of asset 500 000 USD at the lower level, and so on down.On the supply side (the side of buyers), the bank only offers to sell the asset in the amount of USD 10 000 for the best price offer and the other bank offers asset volume per 10 000 USD at the price above this level, and so on.
Imagine that you and I both came with their market orders.You sell 100 000 USD, and I buy the same amount 100 000 USD.Your sale is made on bank interest rates.But the rate of 500 000 USD and your order was for only 100 000 USD, so that your application has been accepted and consumed by only 1/5 different from the total amount available in stock.At the same time it remains available even 400,000 USD at this level, and therefore, the price actually did not move.Thus, the high level of liquidity on the underside prevents the change in prices, even after the sale.
However, my order to buy would be 10 times more liquidity on offer.That is, if I put on the purchase of 100 000 USD, I would have bought USD 10 000, on the proposal of the first bank, and then another USD 10 000 at the suggestion of another bank, standing over him, and then the next USD 10 000 on the proposal is even higher,and so on.My deal exactly the same size as yours, would cause the price movement up to 10 levels, due to the lack of sufficient liquidity for its performance at the same price.My order would have consumed the entire liquidity, which is offered on the first level and at each higher level.Thus, before you an example of the two sales orders of equal size in both directions: in one of them, the price never moved after the execution of your order due to the large amounts of liquidity on your side and the other the price has moved to 10 price levels after the execution of your ordersdue to weak liquidity over.
Therefore, it will be determined by the price movement.In the performance of two equal market orders with equal size, the price will move in the direction of lower liquidity.
Here's how developing trend.Profit broker is spread, so in order to obtain their profits, they need to quickly buy and sell before the price change.The broker buys from you and then immediately sells the same amount to me, earning himself the difference.All the dealer has to do is buy and sell almost at the same time to make a profit, which is called the spread.If they can not do it fast enough, they can make losing trades, and, ultimately suffer losses.
As the price starts to move up, as in the example above, where dealers sell to me at the time, when on the same side of the market has limited liquidity, the dealer who sold me now suffering losses.If another trader came and also made a purchase from the same dealer, their loss may be more because they have to sell again in the fast-growing market moving, and may suffer losses again.
They are trying to reduce the risk further by reducing the amount of the asset, which they offer to sell to someone else after me.They sold me, and to balance its order book, they need to buy the same amount of the asset from someone else at a lower price.They certainly do not want to continue to sell in the growing market, because it would increase their losses.Their efforts are now focused on the purchase to lift its operation with me.Thus, in order to limit the amount that they might have to sell to someone else, they will reduce the volume of their proposals.This, in turn, further reduces liquidity of the buyers, and therefore the price is even more likely continue their upward movement when any other merchants to enter the market in an attempt to buy.
That's why the "Trend - your friend»
This mighty continuing force that nourishes itself and more and more gaining momentum.This is what causes the pulse.That is why the intraday trends occur.This tacit mechanics trend.
This imbalance between supply and demand.As demand and supply has nothing to do with buying and selling, as he thinks the majority of fans.The upward trend does not necessarily have to take place, because in addition to people trying to buy, there are people trying to sell (however, it is, of course, can happen).
number of traders between the buying and selling as well, can be perfectly balanced, as in the above example, when you and I traded the same volume. trend is because of the market sell-side liquidity is less than the present demand on the market for the asset.
Thus, on both sides of the market can be an equal number of buyers and sellers, people like you and me, but the demand is coming from me, both from the buyer more than the liquidity reserves,currently available on my side of the market, while demand on your side smaller than present proposals.This causes a tendency of price movement in the direction of my demand, and as soon as it occurred, the price will continue to go further and further in the same direction.
This explains the technical side of the trend, and explain the origin of trends and continued their movement.