How Forex Pairs Move

How Forex Pairs Move | Forex Tutorial

A Forex pair can be seen as consisting of a series of time frames. Within each time frame is a series of potential support and resistance containers. If there is momentum in a pair at a given time frame, it can be considered that this will create a directional bias down through the series of time frames.

Each container has three main possibilities for each given support/resistance container. That it will cut through, bounce off it and reverse or consolidate around it. Cutting through can defined as a state such that the former support becomes resistance and the former resistance becomes support.

However when it cuts through, it may also return back into the container. The retracement may happen for example, around .10 or even higher from the '00'. Thus 'cutting through' needs to be considered in the context of a possible retracement back into the container. This kind of move can perhaps be seen more as a pattern, based on volatility which can happen around '00's for example, as the pair may then return back to cut through again, but a 'cutting through', which was perhaps contingent on the first, considering this set of moves as a pattern.

The effect of the time frame in question, can be seen as potentially biasing each container in earlier time frames to some extent. That is a strongly directional move, may predispose cutting through. However because Forex moves in complex ways, it can also be considered that such a move may also result in a bounce. Thus the directional stability of a move can be seen as being affected by how strong a move it is.

On each time frame there will be traders and programs which will trade on the patterns in evidence. Thus a strong directional move being forced from above, may be retraced by those in the market. What is overbought or oversold on one time frame may not be the case on lower time frames.

So each strong move can be considered as a set of partly independent potentials to bounce or cut through on lower time frames. As one goes lower this independence may increase, resulting in different terrains, almost like a different market. This can potentially feed back upwards, resulting in consolidation in an otherwise directional market.

The extreme example was the crisis, where the market fell hard. However in Forex, this could be seen as patterns becoming more active. That is, the market still moved in complex ways, and it had a tendency to respect support and resistance at some stage. News events may move in strongly directional ways, and they can also move in complex oscillations, but they do tend to respect support and resistance at some stage.

Did this provide a stabilising effect ? Strong moves may have an inbuilt capacity to self stabilise themselves which results in retracements (which can be seen as volatility) to support or resistance rather than collapse. This capacity may comes from inbuilt support resistance levels, in the Forex market (big figures and values within them). Or perhaps this inbuilt support/resistance comes from the capacity of the market to self stabilise itself, which comes from the actions of traders and other participants, working on a given time frames, or set of time frames.

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