This is the way i look at it, at the heart of all price movement is one obvious concept, perception, this is a game of speculation, my perception against your perception, the banks perception against investors perceptions, we are all trying to predict where price will go using whatever tools we have, so what moves price? Stupidly enough WE move price, because it IS a game of speculation it is our perception of where we think money will go in price that makes the price move, for instance most people make the mistake of thinking that when a negative news report comes out that the market automatically drops as the currency devalues, but who says it has less value?! WE DO. When a negative news report come out fundamental traders short it, because they are speculating that most people would agree that a negative financial report will reflect negatively in currency price, This is probably the biggest self fulfilling prophecy i can think of
So we know that the people who put money in to the market and speculate where price will go move the markets, so who are the players? There are six major players: commercial and investment banks, central banks, hedge funds, corporations, high net-worth individuals, and small investors. Most forex traders are the ones at the end
Now because these 6 groups are the people who control price, who has the biggest say in moving price? obviously the people with the most money, the banks and hedge funds
So we know that there are 6 major players in moving price, and we know that price only moves depending on who has more money invested in their team, either the bears or bulls
So how do all of these players speculate where price will go? how do they do it and what strategies do they work off of?
Well I cant really type out all my thoughts on that but basicly you can imagine it like this, imagine that price is always at an equilibrium, all the economies are absolutely steady and the world is in peace, and then… disaster, a countries most cherished natural resource gets expunged, this is the stone throw in the still waters of the world economy that starts price movement, This is the first step to changing price
News Event > Fundamental Traders > Technical Traders
This is the chain in which price is moved
The second a news announcement comes out there are fundamental traders who speculate against other fundamental traders on where they think the market will go based on the information in the news, These are the big guys, the banks and hedge funds, These people sit around their computers all day watching the news, looking in to economies practices, waiting news announcements and financial releases, and once an announcement comes out they speculate as to where price will go and put billions of dollars on the market within seconds, pulling price to their side that much more, and that’s where the second tier of traders come in, technical traders!
We see the the candles visual representations of where price is being pulled and we interpret it for ourselves, we decide based on a number of different methods where we think price is being moved, whether it is EMA’s, S/R levels, Fibonacci, scalping systems, whatever it is you trade you are trading nothing more then the ripple in the pond
The news event is the stone throw, the fundamental traders are the ripples in price, and although we cannot always see exactly where the ripples originated from and how strong they are, we trade these ripples, we speculate where the speculators think price will go
This is a very basic example but i think it has the basic thought behind it