How Forex Trends Develop
Although the psychology makeup of individual forex traders is often talked about and discussed less often and more importantly the psychology of the collective group is all too often neglected. Have you ever though about what the collective actions of all traders making up the markets is and the effect that has on future price movements?
All markets have conflicting sides of buyers and sellers. It is these conflicting views that actually define market trends. Since all traders have access to basically the same amount of information the difference is their opinions define the herd mentality and causes trends to start, grow and end.
What are the factors that influence trends?
When looking at fundamental analysis of the forex markets an extensive list of various factors can change trends and influence price fluctuations. Among the factors that could influence current and change of trends is political, economic and other unforeseen events.
For example, a change of government in a country can reinforce or undermine confidence affecting the currency it represents. Certain measures taken by states or central banks or directly strengthening or depreciating its currency against others, leading to bullish or bearish trends according to the interpretation of traders as a whole.
Forex traders regularly follow the flow of price and indicators which generates high expectations on certain occasions. These are the times when the market is usually quiet, and as soon as the data is published, starting the runs as each operator hopes to be one of the first to enter the market to gain an advantage, since there are usually some consensus on expected results. Certain indicators such as economic growth (GDP), employment levels and retail sales effect the willingness of investors as a whole and are important to focus on.
In times of more stability traders take on greater risk in hopes of big returns. Conversely, in times of high instability or uncertainty people are much more risk adverse and defense even moving out of paper currency into gold.
It is very important to watch the polices of Central banks and market markets (financial coalitions like the EU and hedge funds) and others with large access or market influence. Central banks and also market markets to a lesser extent have the power to change market trends through intervention and you always need to be aware of what their policies are at all times.
More often than not it is the normal market influences that move the market which include media outlets, price action, news events and both technical and fundamental analysis but you always have to be aware of unexpected events such as the devaluation overnight of the Russian or Argentinian currencies or a terrorist act like 9/11. The group collective and their emotions can be understand providing an edge over the market and all other traders.
The forex market is much more unpredictable than ever before with more traders, liquidity and transactions taking place daily than ever before. The more information you have on your side, the more homework you put in paying attention to analysis of trends and factors that influence markets and traders the better your chance of profiting trading.
Article Source: FxTradingStock.com
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by: Paul Gates
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Date: Mon, 12 Jul 2010
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