Hello everyone,
This is an article which I came across on one of the forums & requested permission to put it up on my blog.
I feel that this explains the basic factors of what makes the market move.
As I often mention while discussing the harmonic patterns - “what is the reason for these patterns to form?”
The prices movement actually takes place by the emotions of the traders. Now these emotions may be caused by various factors, be it some fundamental reasons of economic unbalance, or non performance of a currency, or the strengthening of another currency…it does not matter.
What matters is that different traders look at the situation is different ways, which is reflected on the market price.

The typical inexperienced member of the trading “herd” enters the market, or his position, at point A.
This is a trader who cannot stand the notion that he might be left out of an ongoing rally.
At this point the experienced traders start to cash in on their profits and the rally quickly starts running out of steam.
When the price declines to the point where our trader cannot take any more pain he gets out at point B, just before price finally hits its bottom.
If for some reason he didn’t exit at point B, he will most likely exit at point C being happy to recover some of his losses.
This is exactly the kind of “herd” trader that successful traders prey upon.

Let’s take this one step further -
If price manages to break the high of point A, then the underlying emotion changes to the bullish side & everyone and his brother will begin to buy…expecting the price to go further.
This adds fuel to the fire and this price wave gets extra momentum, thus making it a large price rally.
Now, isn’t this the wave 1-2-3 of an Elliot wave?
So, can we quantify our emotions on a mathematical graph? It looks like we can.
And this is exactly what technical analysis does.
Sunil.