Falling market – how to work with it?
The principles on which the positive or negative market dynamics are based are one of the most important factors influencing the Forex market. It is on the basis of the data on the fall / rise of the market trader can build their forecasts for further trends in price fluctuations. And, of course, it is the growing or falling market that determines the strategy of the game. So how do we know that the current dynamics are the dynamics of the decline? And is it possible to build a trader’s work in direct correlation with this phenomenon?
Of course, in the world of currency trading everything is relative. After all, any forecasts are based on a certain period of time. And the market, which in the short term can be characterized as falling, in the long run may show growth dynamics.
It is enough to look at any trading chart to understand the obvious fact: the market cannot move only vertically upwards or downwards. Its changes on the chart occur irregularly, there are always local lows and local maximums of price values. It is this irregularity that determines the notion of a market decline or rise: the market falls if the local minimum and maximum values it shows tend to decrease, and grows if the dynamics of growth are observed.
How is the price formed in the foreign exchange markets in general? As trading here takes place according to speculative principles, the price of assets is only a result of the presence/absence of demand. And as soon as a significant mass of players gets rid of assets or begins to buy them, there are local highs and lows. Of course, and that’s a pretty conventional concept. After all, most of the time the markets undergo minor fluctuations, moving in the “horizontal flute” – this indicates that at the moment the balance of power of the players is approximately equal. It is not possible to consider the market correction as a fall and a slight rollback of the price at a pronounced trend
Secrets of trade in a falling market
The principles of trading on the falling (bearish) market are distinguished by their calculability – a trader should be able to calculate profitable situations. For example, a bearish trend detected in time can give a good profit, if you choose a strategy to lower the price.
It is important to take into account: the most effective way to track bearish tendencies is to use long time periods for calculations. The downward trend on the chart serves as a signal to the formation of downward trends. Traditionally, for this purpose, trend lines are used, which are drawn from one point on the chart to another, passing through them.
If the trend is traced, it is necessary to pay attention to the presence of additional factors confirming that the market is not going to radically change the direction in the near future. For this purpose, the support lines are drawn diagonally (in the course of the trend) – two lows below the actual trend chart at the time of drawing, and the resistance – two highs above this point. And then parallel to them – the trend line, which will allow you to choose the best points of entry and exit from the market.
The entry point is most often determined after the market correction from the resistance line, and it is important not to forget to set a stop-loss above this line – in case of market reversal.