Forex basics

How Do Market Trends Work?

In this article, we will talk about market trends, How markets move? Buyers and sellers, support and resistance, and pullbacks.

How do markets move?

Market trends are relatively simple to understand. There are always buyers and sellers. When there are more buying market moves up, and it is said to be bullish. When there are more selling market moves down, and it is said to be bearish. The first question you ask yourself as a trader when you open trade is how to know when you buy and sell? Because you can’t be on a sell-side if you don’t know it’s a downtrend, and you can’t be on a buy-side if you don’t know it’s an uptrend. 

An example:

If there are more buyers than sellers, the market rises, and If there are more sellers than buyers, the market falls.

When you hear the terms support and resistance, it simply refers to levels in the market where traders expect to be high priced. To identify these areas, traders tend to use historic price reactions for clues.

Resistance is always above. The market presses up into resistance. Think of someone pressing up against a ceiling and meeting resistance. Support is always below. The market falls into support. Think of standing on someone’s shoulders to see over a wall they are supporting you. 

It’s important to understand that support and resistance levels don’t always show reactions. We identify these levels as the places to watch the next time the market reaches them. Support and resistance should be only part of the trade’s trading plan. The trader may set alerts at support and resistance levels, and then if the market trend reaches those levels, the trader starts to watch and implement the next phase of his trading plan.

The trader very often finds that support, once it fails, is then used as resistance. And resistance, once it fails, is then used as support.

Let’s see how support and resistance works:

If there are more sellers than buyers, the price begins to come down. Prices drop as traders don’t want to buy, so prices must continue to come down until the traders selling find buyers. It continues as long as there are more sellers than buyers.

It’s important to realize that this is how markets move. The trader will see the simply pressing higher without sellers stepping in. He will also see a market falling without buyers stepping in.

Not only is support and resistance a great way to help you identify areas to watch for trades, but the market trends themselves are also major whilst in a trade. Read more

Beginner traders get panic as soon as a market trend goes against them, but it has a detrimental impact on their profitability.

It’s easy to get panic when the market begins to stall and moves against you. Lots of beginners would then exist their trade. They would exit as the market pullback toward their entry. That’s why it is main to understand market trends. Selling is more different if you sell but then existed through panic at the first sign of buyers. If the trader trade like this at the first sign of a position moving against him. It will become hard to be a profitable trader. It is the job of your trading plan to determine where you exit a trade. However, it is also important to understand market trends and build the ability to remain calm when in the trades.

Finally, we can say that If you have the perfect trading plan but don’t follow it and instead exit as soon as a market moves against you, you are no better than a trader with no trading plan at all.

About Marketsbloom:

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By registering with us, you will gain great insights into the common issues traders face. And how to instantly improve your trading approach. Our team of experts will be with you every step by step on your journey to becoming a better trader.

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