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What really moves the market?

Discussion in 'Beginners Bootcamp' started by Christian_K, Jan 16, 2012.

  1. Christian_K

    Christian_K Recruit

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    Hello, im Christian K,
    i have recently started trading Forex again, after loosing everything in January 2010 (first Greek issues with financing appeared - No Stop-Loss accidentally placed in trade, went back from work -> all gone :-( ).

    Before i started trading in End 2009, i read much much much about Forex, understanding the basics how the market moves. But i found out that everyone is telling something different after all. Everyone seems to have their explanation for themselfes how the market works
    And personally i really think that the basic free-market principles of "supply and demand" don't apply to the forex market somehow.

    Honestly, for me the Forex market looks like a basic "line" (the chart of a certain currency pair) which moves mostly driven from economic situations, indexes and economic news. And if you bet into the right direction and the market moves into that direction you won, if it moves into the opposite direction you loose.

    People were explaining to me the following things (which very confusing me and often resulting in false entries/exits from myself in this market):

    1. whenever you won some pips, someone else must have lost them.
    2. even others were telling me that whenever a "candle" moves into one direction, someone or multiple ones made bets into the opposite direction.
    (They justified that by stating that when they are going for instance "long" with very high LOT (obove 40-50LOT), they instantly see the chart reaction, which will be going multiple pips short almost immediately.
    But somehow i can't believe these statements, given the fact that very large players (banks, institues) are also trading on this market and they don't want to loose anything.)

    3. Index like the Dow-Jones, Dax and other driving the Forex market aswell.

    Let me give you an example:

    - We take EURUSD as example for this. Let's say there is a very heavy-impact economic news coming out, for instance stating that Euro-Zone is in deep deep deep trouble. Basically every serious Forex Trader - and especially the large institues like banks, etc - will consider this and expect the EURUSD chart dropping some very large amounts of pips.
    And yes, like expected, eventually the market dropped a few hundred pips.
    Now, seriously you can't in all honestly tell me that there were really some idiots out there going long on EURUSD, and their wrong actions (must be huuuuge amounts of Lot's) made the EURUSD chart to drop?!

    So please, take some time and explaining me the truth and nothing but the truth how this market works and please also take my example and the "3" claims that i've read and posted above into consideration.

    Thank you, best Regards, Christian K :)
     
    #1 Christian_K, Jan 16, 2012
    Last edited: Jan 16, 2012
  2. Pharaoh

    Pharaoh Colonel

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    Believe it or not, in retail fx, for every successful sell order, there's a buy order (unless you're trading with a bucketshop). One thing to consider - closing a sell order is really placing a buy order on the marker. Imagine if you want to go short and I want to close my short position at the exact same moment. Effectively, my short position could be handed off to you.
     
  3. Christian_K

    Christian_K Recruit

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    Thanks alot, yes you are right. I'm just with reading this: Forex Military School | Complete Forex Education by a Pro Banker - Forex Peace Army Forum
    This is seriously the MOST PERFECT introduction into any financial Service i've ever read. I'm so far only at chapter 6, but so far this is really mindblowing and so important. If i would only knew these things before...
    This must be available as a book to buy, like a Forex Beginners Bible. For me prefered in German of course ^^ :)

    So to get back to your "example". Does that mean the closing of a position will directly affect the chart/marker? In the oposite direction i've opened it?
    These are so important fundamentals for me understanding the whole thing.
     
  4. Pharaoh

    Pharaoh Colonel

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    Remember that forex has no central exchange. If there's a central exchange (like the NYSE), then even the smallest transaction would result in a detectable buy or sell event. Of course, selling or buying 1 share of a Fortune 500 company on the NYSE is not going to be much of an event.

    If your broker is ECN or STP, even a small trade could potentially cause a tiny move with the liquidity provider(s) price. A large enough trade during slack times might cause a momentary 1 pip movement. Since different brokers use different liquidity providers, a trade on Broker A might have no effect on Broker B. If Broker C is a market maker that only hedges itself every few minutes, only the most massive individual trades would have a noticeable effect.
     

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