Guess what word is behind movements in the forex market?
Is it technicals?
Is it news?
Is it momentum?
Is it fundamentals?
The answer is none of the above.
So what is the one word that moves the forex market?
The answer is “failure.”
A higher low is formed by a failure to break the prior low.
A lower high is formed by a failure to break the former high.
A double or triple top or bottom is formed by a failure to break a chart level.
What forms trends?
Trends are formed by a series of failures to follow through on corrections, either by small or larger failed moves. This is what forms higher lows or lower highs. This is what creates momentum.
Traders can’t resist trying to pick tops of bottoms. It can be a 5-10 pip correction. on a 5 or 15 minute chart or a 20-40 pip retracement on a 1 or 4 hour chart.
What they have in common is in each case the correction will see traders trimming positions with the trend and others putting on trades against the trend. This, in turn, makes it more difficult for the market to absorb fresh buying (or selling) once the retracement fails to follow through and buying (or selling) with the trend resumes.
Markets rarely move in a straight-line move. They require failures to ease an imbalance. Once the imbalance is reduced, a market will have less ability to absorb fresh buying (or selling) in favor of the trend.
The one word that moves the forex market?
So, the one word that makes markets move is failure. Failures are what fuel momentum and trends.
It is why I say retracements are a necessary evil. It is why I say if contra trading, don’t hold out for the last pip as once the move fails there is a tendency to snap back quickly in favor of the trend.
Here is a real-time illustration of what I mean by failure or a failed correction
On the other side, when a failure does not materialize, it can give a clue that a trend has stalled or about to reverse. For that reason a trader should identify key levels that would change the technical picture if broken.
When you think about trading in this way you will be able to put the current price action in perspective and treat failures as opportunities to trade.
The One Word That Makes Markets Move Part 2
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