Why Markets Move: Stop Obsessing Over “Why” and Start Mastering the “How”
I think I’ve been getting this question about once a week for over 10 years. “Why is the stock going down?”, “Why is the stock going up?” and just less than an hour ago on one of our channels: “What reasons pushing gold up again ???”
One of the most frequent questions traders and investors repeatedly ask is deceptively simple. It seems straightforward—there must be a clear and simple reason behind every price movement. Yet, if you’ve spent time actively trading or investing, you’ll have discovered the frustrating reality: markets rarely move for just one clear reason.
Let’s dive deeply into understanding why obsessing over the “why” is often less useful than learning “how” to successfully participate and profit from market movements.
The Myth of Single-Cause Market Moves
It happens consistently, especially during earnings seasons or major economic events:
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A company reports impressive revenue growth, beats analyst expectations on earnings per share (EPS), issues strong guidance—yet the stock drops 7%.
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Gold prices, after soaring to new all-time highs, suddenly plunge by 11% within a few weeks—then abruptly reverse course and rise sharply.
This seemingly paradoxical behavior puzzles many market participants, leading them to repeatedly ask: “Why?”
The truth is complex: Financial markets are dynamic systems driven by myriad interconnected forces. It’s essential to internalize that no single reason typically dictates price action, and even experienced market professionals rarely fully grasp all contributing factors. Wait, that was an understatement because there is no one alive that fully knows the entire, complete, fully weighted, precise resolution of the why markets move. It is impossible to know all the why’s and that will probably never change. And, no, I am not talking about the reason being that there are X buy orders vs Y sell orders, etc. I am also talking about why those orders were set in the 1st place.
Understanding Complexity and Embracing Uncertainty
It’s human nature to crave simplicity and direct causation. Our brains seek easily digestible answers, but markets resist such simplification. Several critical factors consistently influence asset prices:
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Fundamental Catalysts: Earnings announcements, economic data, interest rate decisions, geopolitical developments, commodity cycles, etc.
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Technical Levels: Volume-weighted average price (VWAP), key levels from volume profile analysis (Value Area High/Low, Point of Control), opening prices for the year/month/day, Fibonacci retracements, and psychological round-number levels.
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Market Positioning and Order Flow: Institutional order placement, hedge fund risk management rules, algorithmic trading strategies, short covering, and large-scale profit-taking.
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Hidden Factors and Dark Pools: Off-exchange transactions and institutional trading activities that aren’t immediately transparent but significantly influence price action.
Critically, even when a major news item appears clearly bullish or bearish, its real market impact depends heavily on pre-existing market expectations, positioning, and broader sentiment.
Real-World Example: Gold Futures’ Recent Movement
Consider recent price action in Gold Futures (GC). After touching an all-time high at 3,509.9, prices dropped by approximately 11% over 17 trading sessions, bottoming at 3,123.3. Yet, shortly afterward, the market rebounded sharply, trading back up toward 3,210.5.
On the surface, the immediate question might be, “What caused gold to suddenly bounce back?” But digging deeper, the move may reflect multiple simultaneous factors:
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Short Position Profit-Taking: Institutional traders and hedge funds often set risk thresholds, necessitating periodic profit-taking and position size adjustments.
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Algorithmic Buying at Technical Levels: Sophisticated algorithms automatically activate buy orders around certain technical levels like VWAP, monthly opens, or high-volume nodes (POC).
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Broader Market Sentiment Shifts: Perhaps investors interpreted weaker economic data or geopolitical tensions as reasons to increase allocations to safe-haven assets.
Critically, none of these factors alone fully explain the complexity of market behavior—but all likely contributed simultaneously.
The Limits of “Knowing Why”
Assume, hypothetically, you know precisely why gold bounced—say, investors flocking to safe havens amid economic fears. Even if correct, this information alone provides limited actionable trading guidance. It does not:
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Determine the optimal entry and exit points.
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Inform you about how significant resistance or support levels may influence future price moves.
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Reveal the ideal position sizing and risk management strategies.
Simply knowing the reason doesn’t automatically translate into profitable decision-making.
Transitioning from “Why” to “How”
Successful traders and investors shift their emphasis from endlessly dissecting why markets move to skillfully determining how to exploit these movements. Here’s how to practically adopt this crucial mindset shift:
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Identify Key Levels:
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Understand where institutional and algorithmic orders cluster (VWAP, POC, Value Areas, Fibonacci levels).
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Watch Price Action Closely:
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Observe how price behaves at these critical levels—absorption, rejection, breakout, or retest.
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Risk Management and Position Sizing:
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Clearly define entry and exit points, profit-taking areas, and stop-loss placements.
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Adaptability:
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Be ready to adjust your trading plan based on actual market responses rather than theoretical reasoning.
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By focusing on these strategies, you develop a proactive trading framework centered on actionable data rather than elusive causes.
ForexLive.com Evolves: Introducing investingLive.com
Recognizing the broader needs and interests of investors and traders, ForexLive.com will evolve later this year into investingLive.com. This transition aims to provide comprehensive coverage beyond currencies, including stocks, commodities, cryptocurrencies, and alternative investments. The new platform will deliver enhanced market insights, decision-support tools, educational resources, and actionable strategies tailored to today’s dynamic investing environment.
Practical Takeaway: Master the Art of Riding the Wave
Ultimately, successful investing isn’t about having perfect explanations for every market move—it’s about successfully navigating those moves. Rather than fixating on explanations, traders should prioritize:
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Actionable Preparation: Have structured plans that anticipate multiple scenarios at key price levels.
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Real-Time Responsiveness: Quickly adapt your positions based on market feedback, not your biases.
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Consistent Risk Discipline: Adhere strictly to planned risk management protocols.
The legendary trader Jesse Livermore famously advised:
“Markets are never wrong; opinions often are.”
Internalize this wisdom. Accept uncertainty. Master the art of positioning yourself to profitably “ride the wave,” rather than fruitlessly trying to pinpoint precisely “why” the wave formed or where it will ultimately break.
By adopting this disciplined approach, traders and investors will experience sustained success, improved confidence, and less anxiety about market mysteries.
Stay tuned as we continue evolving into investingLive.com, bringing you an even richer suite of tools and insights to navigate financial markets effectively.
This article was written by Itai Levitan at www.forexlive.com.
