Do you ever wonder why you turn on your screens and it is often hard to figure out which way the forex market will move as it appears to be in balance?
Have you thought about why currencies settle into tight ranges with interest on both sides before making the next move?
Have you noticed how a currency gets stuck in a tight range in one centre and needs to see another centre open up to break from that range?
Well. I have and can tell you the reason why.
All markets seek equilibrium. It is a dynamic term as equilibrium does not last long but this does not stop the forex market (or any market for that matter) from being in a constant search for it. This is why you see a currency, for example, make a move in one direction and then settle into a tight range as buyers and sellers come into balance on both sides.
What is Equilibrium?
Equilibrium is a period of time when supply and demand come into balance. It is a time when buyers and sellers of a currency offset each other in a tight range. Once this balance tips in either direction’s favor, the market moves off equilibrium and seeks a new level where buyers and sellers come together. In other words, markets, such as forex, are constantly searching for new levels of equilibrium to bring buyers and sellers into balance.
One reason I am bringing up this topic is that it is rarely talked about but it is the dynamic of any market. If you trade during a period of equilibrium, you are either trading in a range or are betting on the next directional move. If you trade while the market is seeking equilibrium you are trading when there is momentum.
If you think about the market in this way you can put price action at any point in time in perspective. You can also avoid getting fooled by a currency appearing to be bid when it is in an offered market and vice versa. In any case, be aware that all markets are in a constant search for equilibrium.
Jay Meisler, co-founder, global-view.com
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