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When the Market is Weak

The Forex market can display both strength and weakness. Understanding these states is crucial for traders to make informed decisions and capitalize on market conditions. By combining elements such as bars, spreads, and volumes, you can identify patterns composed of these three data points. These patterns decode market participant behavior and guide your actions.

In this material, we’ll focus on market weakness, identifying key patterns that signal bearish dominance and opportunities to open short positions.

When is the Market Weak?

Market weakness manifests when sellers gain the upper hand, and buyers lose momentum. These situations are often accompanied by specific patterns that warn of potential price direction changes. Below are the main weakness patterns to watch for:

Pattern "Weakness A"

Characteristics:

Down bar (a bearish bar where the closing price is lower than the opening price).
High volume, indicating significant participation by major players.
Narrow spread, suggesting a lack of strength to sustain the movement.
Closing at the bar’s low, signaling selling pressure.

This pattern often precedes the continuation of a bearish trend.

Pattern "Weakness B"

Characteristics:

Up bar (a bullish bar, but with signs of weakness).
High or extremely high volume, indicating strong market activity.
Narrow spread, suggesting buyers lack genuine strength.
Closing in the middle or lower part of the bar, confirming sellers' dominance.

This pattern requires confirmation from subsequent bars to rule out false signals.

Pattern "No Demand"

Characteristics:

Up bar, representing an attempt to push prices higher.
Low volume, signaling weak buyer activity.
Narrow spread, reflecting a lack of strong upward pressure.
Closing at the low or near the lower part of the bar, indicating market weakness.

This pattern warns that the market lacks support for further growth.

Pattern "Up-Thrust"

Characteristics:

Can be either a Down bar or an Up bar.
Very wide spread, indicating sharp movement.
Extremely high or simply high volume, suggesting the involvement of major players.
Closing in the lower part of the bar, typically appearing at the peak of a price wave.

This pattern signals a potential end to an uptrend and the beginning of a reversal.

Pattern "Pseudo Up-Thrust"

Characteristics:

A Down bar or Up bar that breaks the high of the previous bar.
Very wide spread, reflecting strong market activity.
Low volume, indicating insufficient support for the move.
Closing in the lower part of the bar, requiring confirmation from the next bar.

This pattern can be misleading if not analyzed alongside subsequent price action.

Pattern "Stopping Volume"

Characteristics:

Up bar appearing at the end of a movement.
Medium or wide spread, suggesting the trend is losing momentum.
The highest volume, indicating sellers are absorbing buyers' activity.
Closing anywhere except the low, which could signal an impending reversal.

This pattern requires confirmation, as prices sometimes continue moving due to inertia.

Important Notes

Understanding Patterns. Each of these patterns provides clues but does not guarantee outcomes. Their interpretation requires experience and additional market analysis.
Confirming Signals. Avoid making trading decisions based on a single pattern. Use other tools and methods to confirm your analysis.
Practice Makes Perfect. Study these patterns on demo or live accounts to better understand their dynamics and how they relate to market behavior.

What’s Next?

In the next material, we’ll explore moments when the market demonstrates strength and learn how to identify when buyers take the lead. Stay attentive, watch for market signals, and remember: strength or weakness is merely a reflection of participants' actions. Your job is to learn to interpret these actions and leverage them to your advantage.