‘The trend is your friend’ is one of the most famous and oldest maxims in the financial markets. In fact, all experienced and successful traders agree that investors are at their safest when their trades are in tandem with the overall market trend. In, where leverage amplifies market moves, developing a trend-following strategy is paramount to success, or at the very least, survival.
But it is one thing trying to follow trends, and another altogether comprehending what shapes them. Understanding what influences price direction can help traders anticipate trends before they happen. This can consequently give them a unique edge in the markets and enable them pick out the best risk/reward ratios for their trade positions. It is trends that allow traders to derive profits or losses from the markets, and recognizing what inspires or initiates them, may well be the difference between routine failure and consistent profitability.
They hold the most influence in the markets, by virtue of having numerous monetary andthat can literally change the course of an economy. Governments can hike or cut interests rates, and effectively control the speed of growth of an economy as well as the inflation rate. This will have immense trickle down effects on the economy; from the appetite of investors to take risks and banks to give out loans, to the amount of disposable income available among the public.
Governments can also invoke fiscal tools, such as increasing or decreasing spending in the economy. This can, as well, have an impact on employment rates in a country, or even impact the stability of prices. Any government can also control the amount of investment flowing in or out of a country, and this will have a great impact on the.
The flow of money between countries can have a huge impact on the economy, as well as the markets. It is no coincidence that the recent trade war tensions between China and the US have literally held the markets in ransom. If more money leaves a country than comes in, the economy will continually become weaker. But if more money comes in, than leaves, an economy becomes stronger, with even more money available to stimulate the financial markets.
The integral role of speculators in financial markets has been well documented. By seeking to profit from price fluctuation, they contribute to price stability as well as enhancing market liquidity and efficiency. Current actions will shape the expectation of future prices. There are different groups of people that help create sentiment bias in the markets: consumers, investors and even politicians. By tracking various sentiment indicators, general market participants can develop a bias for the direction of future prices. Ultimately, cumulative speculation can be the trigger of any price cycle and eventually, a market trend.
Supply and Demand
The price of any financial asset at any given time is a reflection of the overall supply or demand at that particular time. The price of any asset will rise if demand is growing, while supply shrinks; and it will fall, if supply increases in the wake of declining demand. When trading any financial assets, investors must understand and determine whether the underlying demand and supply forces are shifting, and to which direction.
All these factors can trigger both short and long term trends. With multiple investors tracking the headlines of any of the factors, it is no wonder that economic news releases remain the biggest catalyst for large price swings in the market. It is therefore vital for financial market traders to incorporate a news trading strategy that will seek to profit from any headlines with the potential to shape both short and long term trends.
Here are the news releases investors and traders should look out for:
Various major Central Banks will always meet periodically to decide whether to hike, cut or leave rates unchanged. This decision will have broad implications on the entire economy and trigger huge trends in that particular country’s currency and financial markets.
The Gross Domestic Product is arguably the best measurement of an economy’s health and growth outlook. When that figure falls below market’s expectation, a bearish trend will be sparked, and vice versa.
The unemployment rate of a country is a vital indicator of the general health of the economy. This figure will also guide the actions of governments through Central Banks. For instance, the US Federal Reserve may hike rates when there is low unemployment, with a view of balancing inflation with economic growth. The importance of the Unemployment Rate is highlighted by the fact that one of the most influential market news releases in recent years has been the US NFP (Nonfarm Payroll) report.
Trends in markets come and go. Understanding the factors that shape trends can help traders anticipate their genesis as well as their end. By tracking news headlines of the factors that shape market trends, traders can consistently pick out lucrative opportunities in the market with minimal risk exposure.