Financial markets are ever-changing, and some fluctuations may be irrational, disorderly, and sudden, catching some novice traders off guard.

Long pullback and short covering

There are many participants in the financial market, among which there is always a group of short-term speculators who make a profit by frequent leveraged transactions, often chasing longs in an upward trend and shorts in a downward trend. Generally speaking, when the market reaches certain stages or touches certain key resistance or support levels, these sensitive traders will seize the opportunity, hoping to be the first to arbitrage at the best position and cause the market to reverse.

This is called a long pullback or short covering, which is a situation of profit-taking. This trend may be short-lived because it is not based on the judgment of the real market direction. This may only be an impact on the trading operation level, so it has little to do with the basic and chart technical aspects.

Stop loss trigger market

It is also important to note that when some important breakthroughs occur, the trend is often more rapid. On the one hand, this is mostly in conjunction with the release of news, and it will mostly cause technical resistance or support breakthroughs. On the other hand, if a large number of stop loss settings are touched, it also means that many traders are forced to sell or buy reverse offsets, adding momentum for further price increases or decreases.

Holiday Factor

When trading, you should also pay attention to holiday factors, especially long holidays, which may cause fluctuations. Because the market trading volume may decrease around holidays, the fluctuations may be different from the daily market conditions (may be larger or smaller). In addition, people often mention the closing orders before the weekend, pointing out that traders may avoid holding positions during the holiday period and try to close positions in advance before the close of Friday. If there is a major news during the holiday, it is easy to cause the market to jump, and the sharp rise and fall will cause unnecessary risks.

The above unwritten market conditions mainly come from the following two behaviors:

1. Any trader will manage risks and avoid uncertainty.
2. There are always speculators in the market, whose buying and selling behaviors are not based on market analysis.

Knowing the reasons behind the above situation, it can be seen that these market conditions can only be prevented, but not avoided. Of course, there are dangers as well as opportunities. While preventing the risks caused by these fluctuations, it is also an opportunity to capture profits.