Do the markets need rest? Not in the strict sense of the word like we do. But metaphorically, yes! When markets consolidate or move sideways, we can say that the market is resting. Why markets start to consolidate, move sideways or accumulate? There are basically two reasons. Let's discuss them!
The first main reason for the market to consolidate, accumulate or go sideways is when the world is waiting for a fundamental announcement and trades stop trading in anticipation of a major market move or breakout after the announcement. When the traders stop trading, the market starts to consolidate in a tight range or what you call a small trading range. These smaller trading ranges maybe between 20 to 60 pips! They can be seen on smaller timeframes such as the 30 minutes or 60 minutes charts.
The second main cause of the market going into a consolidation mode is when a major central bank is about to intervene in the currency market in support of its currency. Sometimes, central banks feelm that the currency is appreciating too much or depreciating too much. It might want the exchange rate to stablize between a band so it decides to intervene in the market. The news travels fast in the global market and the market suddenly starts to consolidate in anticipation of the move adopting the watch and see approach. This foreign exchange intervention by the central bank is usually done to give boost to the exports or make imports cheap for the country.
For example, Japan is a major exporting country in the world. Its economy is export based. Japan may want its currency Yen (JPY) to stabilize between 110 and 115 yen to the US Dollar (USD). This is a 500 pips range. Japanese Central Bank (JCB) may feel that by intervening in the currency market, it can boost its exports making them more competitive.
Now, when this happens, the currency market usually goes into an extended period of consolidation or sideways movement that might extend to weeks or even months. This is the time when you can find large trading ranges in the market something like 150 to 500 pips. These large trading ranges can extend for weeks or even months. You can observe these large trading ranges on eigth hour or daily chart.
How much of the time market is consolidating or moving sideways? Almost something like 60-70% of the time! That means a market only trends for 30-40% of the time and for the rest of the time is just accumulating or moving sideways. This is an important information for you. What this means is that most of time trader have to do range trading because there is nothing else to do.
The first main reason for the market to consolidate, accumulate or go sideways is when the world is waiting for a fundamental announcement and trades stop trading in anticipation of a major market move or breakout after the announcement. When the traders stop trading, the market starts to consolidate in a tight range or what you call a small trading range. These smaller trading ranges maybe between 20 to 60 pips! They can be seen on smaller timeframes such as the 30 minutes or 60 minutes charts.
The second main cause of the market going into a consolidation mode is when a major central bank is about to intervene in the currency market in support of its currency. Sometimes, central banks feelm that the currency is appreciating too much or depreciating too much. It might want the exchange rate to stablize between a band so it decides to intervene in the market. The news travels fast in the global market and the market suddenly starts to consolidate in anticipation of the move adopting the watch and see approach. This foreign exchange intervention by the central bank is usually done to give boost to the exports or make imports cheap for the country.
For example, Japan is a major exporting country in the world. Its economy is export based. Japan may want its currency Yen (JPY) to stabilize between 110 and 115 yen to the US Dollar (USD). This is a 500 pips range. Japanese Central Bank (JCB) may feel that by intervening in the currency market, it can boost its exports making them more competitive.
Now, when this happens, the currency market usually goes into an extended period of consolidation or sideways movement that might extend to weeks or even months. This is the time when you can find large trading ranges in the market something like 150 to 500 pips. These large trading ranges can extend for weeks or even months. You can observe these large trading ranges on eigth hour or daily chart.
How much of the time market is consolidating or moving sideways? Almost something like 60-70% of the time! That means a market only trends for 30-40% of the time and for the rest of the time is just accumulating or moving sideways. This is an important information for you. What this means is that most of time trader have to do range trading because there is nothing else to do.