Three phases of any tendency | Tendency
Tendency: A large part of the traders have an incomplete understanding of why trends in the forex market are formed of Tendency.
The purpose of today’s article is to show how a more complete understanding of trends can be acquired through training in order to read the psychology of the operators involved in the market. First let’s talk about the three phases that accompany each movement trend and then let’s take a look at the process that takes place behind the scenes that causes trends manifest in the market.
All forex market trends comprise three phases.
Note: My definition of trend is a price movement from one point to another without a significant setback or consolidation takes place during the movement.
Phase 1 – Imbalance
The first phase of any tendency is created by a set of commands entering the market that are greater in size than the current commands that cause the trend.
Example: If the EUR / USD is in an uptrend, that means that in general, there are more buy orders than sell entering the market. For the market to move downward, should be placed sales transactions that are larger in size than purchase transactions that are causing the market to rise.
If they get enough sell orders in the market, purchase orders finally consumed and the market may continue to rise. With the purchase orders being eclipsed by sales orders, the market price will start to fall.
Note: The phase imbalance occurs at the beginning of each market trend regardless of the time frame in which the trend taking place.
Phase 2 – Settlement
Liquidation is a term used to describe what happens when a trader closes a losing trade. Normally this is because the position touched stop loss, but in many cases the traders end up closing their operations manually due to other reasons the market. The liquidation phase is the result of imbalance that occurs in the first phase.
The resulting motion created by the imbalance of orders Phase 1 makes the traders who had open positions in the opposite direction to which the imbalance occurred close their positions at a loss. These traders are closing their losing trades, add more sell orders in the market, which increases further decline in market price.
Note: The duration of the movement generated by the liquidation phase depends on how many traders had open operations against the direction in which the imbalance occurred.
Phase 3 – Awareness
This phase is a consequence of the movement generated by market the first two phases. When the first and second phases are completed, the market will have moved enough for operators to identify the current movement as a new trend, leading them to place buy or sell positions.
Phase 1: is always caused by a set of commands that come into the market that are larger in size than the orders causing the current trend.
Phase 2: begins when traders caught on the wrong side of the market begin to close their positions with losses due to the imbalance created by the Phase 1.
Phase 3: takes place when traders realize that a new trend is occurring due to the movement created by the phases 1 and 2.
The trends are essential for traders to make money in the forex markets. Without a trend it would not be possible to make a profit, so the correct understanding of how trends are created in the market is essential not only for profit, but to find inputs and outputs at the right time.
Although it is impossible for anyone to predict the exact point where a trend will begin and end, how and why they form can help a lot in the analysis of financial markets. If we can understand how they interact with different traders in the market by placing and closing positions, you can find out when probably place their own positions banks and, as you know anyone who has operated for a reasonable amount of time, understanding how banks operate is the key to making consistent profits in forex trading.