Several types of conditions lead to trend days, but usually include some kind of tightness or daily volatility range. In principle, extending the price tends to follow periods of price contraction, the phenomenon is cyclical. The market adjusted between periods or rest periods of consolidation and movement, or markup / markdown. Volatility is actually more than a cyclic rate.
When the market consolidates, buyers and sellers achieve equilibrium price level and trading range tends to narrow. When new information enters the market, the market is moving away from this point of balance and trying to find a new price or "value" field. Or longs or shorts will be "trapped" on the wrong side and eventually forced to cover the existing supply annoying / demand imbalance.
In turn, the rising price momentum attracts new market participants, and soon a vicious circle is created. Local pit traders, recognizing the way to run a race to cover the contracts. Rather than react to the price back as in normal trading markets, "positive feedback" is created-state in which no one can predict how the price will go. The market tends to gain momentum, rather than check back.
Sunday, May 29, 2011
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