Nature abhors a vacuum

If you want to understand why the market pulls back in an uptrend keep “Nature abhors a vacuum” in mind.

The area between 2722 and 2728 now has (to an extent) a “liquidity vacuum” on the buy side. The liquidity hasn’t had chance to build up in that area as it has on the sell side. We are at 2722 – we have moved up into an area where sell side liquidity has been sitting for a while. We moved up into an area where no buy side liquidity existed before but where sell side liquidity exists. The ceiling is strong and the floor is very weak. Any uptrend will have a mix of market buyers and market sellers eating liquidity on both sides.

 If you only have market orders on one side, look out!

Eventually, we get to a point where we have a thicker floor below us and a relatively thin ceiling above. Price starts to move up and a whole bunch of traders think “Continuation”. Anyone that sold the pullback starts to feel a little queasy and pukes out (by buying). We may see a little acceleration to the upside as the market becomes quite one-sided. Then the process starts over again.

See this video to understand the principle:

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