Tuesday, May 24, 2016

How Do Trends Form in Forex Market

Most traders have no idea why trends form in the foreign currency exchange market. They do know that trends are a normal part of the forex market, but they do not know how these trends start. 

The purpose of this article is to give the readers a better understanding regarding the formation of the trends. 

We will talk about the first and the most common factor that triggers the occurrence of these trends, to give you a better idea on how these trends form in the forex market. 

Imbalance in the Forex Market

Basically, an imbalance in the forex market is the most common factor that affects the formation of a trend. When there’s too many buyers than sellers in the market, the price is pushed further upward due to a high demand, causing an uptrend in the market. On the contrary, when the amount of sellers exceeds the number of buyers in the market, it causes the prices to move downward mainly due to a lack of demand, triggering a downtrend in the market.

For example, if there are a lot of traders that are placing a buy order in the EUR/USD, it can push the price of the currency pair higher, causing an uptrend in the market. Basically, traders would need to place sell orders that exceed the number of buyers in order to push the prices lower.

If enough sell orders enter the market to the point where it surpasses the amount of buyers, then the price may stop ascending higher and may start to go in the other direction, putting an end to the uptrend and forming a new trend (downtrend).

It is important to understand how these trends are being formed as this information can help a great deal in your trading decisions.

Further improve your strategies in online trading by reading our educational forex articles. See who the best forex brokers are, visit Wibestbroker.com to find out!

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