A liquidating market is defined as a market that is experiencing a pattern of broad selling in the face of declining prices. It can take place in all kinds of market and is not just limited to the financial markets. Nevertheless, the issue of liquidating market is important for an online trader as it will affect his trading strategy. Lately, it is even more critically important as the recent financial meltdown that happened in the sub-prime mortgage market in the U.S. has caused the liquidating market to dominate the scene longer than usual.
Thus, in the face of this kind of volatile market that you might be facing, you need to be on your toes and be aware of exactly what kind of markets that you are trading in and adjust your trading strategy accordingly. A market which is consolidating, Ranging or trending all requires different types of trading strategies to deal with them. Liquidating markets are especially difficult to deal with for day traders because the fluctuation of prices tends to move in ‘bursts’. One will see a sharp drop in prices when a large liquidating order comes into the market with limited follow through after that. Because a sharp drop in prices can trigger stops or break through an important technical level, these can and is likely to spark off another round of liquidation. When the above vicious cycle occurs, we often find false bottoms or tops.
Usually, the span of a liquidating market position is relatively short and stops will also get exhausted. The next phase of the market reaction after a liquidating run has flatten out is either to continue the trend as the next cycle or reverse the trend. On the other hand, the current market situation is far from ordinary. Since the beginning of 2008 and driven by a heighten level of risk aversion, the global financial market has been facing extreme volatility.
Just as when we thought the market is due for a correction and trend reversal, the liquidating market continues its vicious cycle. The unending waves of selling orders will put a strain for those traders who are used to trading in a typical market by looking for paltering bottoms or tops. The end result will cause everybody to be running for cover. Nevertheless, avoiding the temptation to go bottom fishing for profitable situations is not easy in a liquidating market. The illusion of the market bottoming out can really pull one into loss making spiral. This is where iron clad discipline in trading will pay off.
he herd like mentality that we all possess needs to be restrained. Financial experts have suggested the liquidating markets are driven by factors other than fundamental economic theories or technical analysis. Hence, relying on technical analysis for reliable forex signals can be extremely difficult for a liquidating market. Regardless, the best way to avoid getting sucked into a liquidating market is to have proper money management and discipline in controlling oneself from running after false bottoms or tops.
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Thus, in the face of this kind of volatile market that you might be facing, you need to be on your toes and be aware of exactly what kind of markets that you are trading in and adjust your trading strategy accordingly. A market which is consolidating, Ranging or trending all requires different types of trading strategies to deal with them. Liquidating markets are especially difficult to deal with for day traders because the fluctuation of prices tends to move in ‘bursts’. One will see a sharp drop in prices when a large liquidating order comes into the market with limited follow through after that. Because a sharp drop in prices can trigger stops or break through an important technical level, these can and is likely to spark off another round of liquidation. When the above vicious cycle occurs, we often find false bottoms or tops.
Usually, the span of a liquidating market position is relatively short and stops will also get exhausted. The next phase of the market reaction after a liquidating run has flatten out is either to continue the trend as the next cycle or reverse the trend. On the other hand, the current market situation is far from ordinary. Since the beginning of 2008 and driven by a heighten level of risk aversion, the global financial market has been facing extreme volatility.
Just as when we thought the market is due for a correction and trend reversal, the liquidating market continues its vicious cycle. The unending waves of selling orders will put a strain for those traders who are used to trading in a typical market by looking for paltering bottoms or tops. The end result will cause everybody to be running for cover. Nevertheless, avoiding the temptation to go bottom fishing for profitable situations is not easy in a liquidating market. The illusion of the market bottoming out can really pull one into loss making spiral. This is where iron clad discipline in trading will pay off.
he herd like mentality that we all possess needs to be restrained. Financial experts have suggested the liquidating markets are driven by factors other than fundamental economic theories or technical analysis. Hence, relying on technical analysis for reliable forex signals can be extremely difficult for a liquidating market. Regardless, the best way to avoid getting sucked into a liquidating market is to have proper money management and discipline in controlling oneself from running after false bottoms or tops.
ForexMarket4you
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