What Drives Prices Up Or Down January 24, 2011
Posted by Forex in trade forex.Tags: foreign currency exchange, forex, forex trader
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Inflation and recession are words you see in the news often. But do you ever stop to think what drives the prices in an upward or downward direction? Simply explained, it’s demand and support. These are extremely interesting terms that you as a global Forex trader should become familiar with. They’re what set the prices as well as the support and resistance levels on your charts. And it’s these charts as you know, that help you gage future trends in the foreign currency exchange.
When there’s an excess of supply, the currency values drop. The opposite holds true when there’s an increase in demand. When both are at equal levels, the markets trend sideways. However, you shouldn’t ignore what’s taking place. A flat-lined market doesn’t remain that way. Remember there’s always calm before the storm and in this case the buyers and sellers are fighting it out and whoever “wins” sets the trend for the next movement.
To help you grasp the concept better, note that support is the level at which the bulls stop the currency from diminishing further in price. Resistance is the point at which the sellers prevent the monetary unit from escalating in value. However, sometimes when news events are released, the prices break through either of the levels.
It’s always advisable to wait sometime after this happens. This is because a new support and resistance levels have to be established. Support and resistance are perhaps the lone rangers of Forex.