My understanding with the candlesticks is that when the pips rise, there is increasing demand. When the pip falls, there is decreasing demand and sellers are lowering their ask price in order to make a sell. People say when the close price is lower than the open price, the sellers are winning and putting on the pressure. This does not make since to me since I think a seller wants to sell his item for the highest price possible.
Thus, it seems to me that the buyers are winning when the price for a pair exchange decreases since they have to pay out less money for their purchase. Or the other hand, the sellers are winning when they can get a higher price for selling their pair. Please explain why sellers are winning or putting on pressure when the close cost is lower than the open cost. I just don’t see pushing a price downward thus causing the seller to get less money is considered winning or why they would want to put on pressure to decrease the price for their pairs.
Hmm, that’s one way of looking at it, although I think your line of thinking is a little more forward-looking. Basically, when the close is lower than the open, that means that sellers have been stronger than the buyers in that particular candlestick period. Even if price moved around in that time frame (hour, day, or week), the sellers still ended up stronger since they were eventually able to push for a lower close.
For the next period though, this might encourage buyers to take advantage of the lower price (as you mentioned) and try to get in a long position since they have to pay out less money at this point. Of course the price action for this period still depends on how market participants perceive future prices. In other words, if sellers think that price could still move lower, they could maintain their short positions and trigger another lower close for that candle. If buyers think that price will move higher, they could pile on their long positions and take advantage of the cheaper price.
Grab an economics textbook and read about the theory of demand, the theory of supply, and the overall theory of price. The EURUSD pair can decline from either an decrease in the demand for the euro or an increase in the supply of the euro relative to the dollar.
Commentators who say “buyers won” when the price rose are making the assumption that demand for the euro rose, but they frankly are full of **** and have no idea. It is just as likely that supply of the euro fell. It is not important for us as traders to know or care. The factors that determine the changes in supply and demand for the euro on the dollar are too many and too diverse to be concerned about.
Examples? Sanofi is a pharmaceutical company based in Paris that does billions of euros in business. Suppose they sell $126 million worth of drugs to U.S. customers on 30 day terms (thats €100 million). They invoice the customers in US dollars today, October 1. If the dollar loses 1% of its value against the euro before October 30 when the customers pay those bills, the value of the $126 million drops to €99 million. Sanofi loses €1 million. So Sanofi buys the EURUSD in the amount of €100 million today on October 1. They have a short position of €100 million on their books in the form of receivables from US customers and a long position of €100 million in the forex market. When their customers pay, they will close out their forex position. If one position loses, the other will gain and offset the loss. This is called currency hedging.
On October 1st when Sanofi buys the EURUSD, the demand curve for the euro goes up, possibly raising the price of the EURUSD as they find sellers at higher and higher prices. On October 30th when Sanofi sells their position in the EURUSD, the demand curve for the euro goes down, possibly lowering the price of the EURUSD as they find buyers at lower and lower prices. In this way, traders take on currency risk from hedgers and prices fluctuate as the total supply and demand curves move in the global marketplace.
Traders move the prices even more. Near a price top or bottom, traders calling the extreme often call it too soon and cascading stops move the price even further to the extreme, a market phenomenon called “reflexivity”. Read the book by that name by George Soros (yes the forex trader billionaire George Soros).
Fluctuations in supply and demand are not only impossible to predict, but usually impossible to measure outside of the simple metric of the price itself. When prices rise, their was either a shift in supply or demand or both and we really don’t know what the curves look like.
Develop a strategy that enables you to make money on price data alone and you won’t need to worry about why the price is what it is.