Trends enable investors and traders to score profits. The variation of prices is the one that creates profits and losses, whether we talk about short-term or long-term market trends.
Both trends: short-term and long-term market fluctuations are influenced by these factors, it is essential to understand how they affect the current situation for creating market direction. Although these factors are essentially different, they are intertwined, therefore influencing one another. The actions of the government have a direct impact on international transactions, which influence the evolution of speculation, while supply and demand also play an important role in each of these factors.
Whenever the government issues press releases such as tax policy and spending changes, or whenever the Federal Reserve changes the interest rates policy, the long-term market direction is dramatically affected. When taxes and interest rates are low, people are encouraged to spend more, therefore contributing to the economic growth. As this happens, market prices tend to increase. Nonetheless, this isn't always the rule, because other factors influence such market direction. For instance, higher interest rates and taxes make people avoid unnecessary spending, the result being the contraction of the market or a long-term fall in prices.
Such news releases can generate huge price swings in the short term, as traders react to the information by buying or selling shares. As they intensify their actions, short-term trends are created. However, the longer-term market direction is rather the ones that tend to develop once the ripples of such news calm down.
International transactions are tough to follow on a daily basis. However, they are imperative when it comes to the development of long-term market direction in various markets around the globe. The currency markets, especially, are a paramount indicator of the health of a country and its economy. Whenever a currency is in high demand, it is going to rise above all others, so traders who bet on it can make nice profits.
The value of a country's currency has a direct influence on the performance of other markets within that country. For instance, a weak currency will deter investors, as their potential profits are going to be eroded by the decreasing value of that currency.
Traders and investors analyze all news and information from the media or the government very carefully. Based on their conclusions, they take certain positions and perform transactions that can create speculation as to how the prices are going to evolve. When the number of people believing in a positive evolution reaches the critical mass, the market engages on a trend that could maintain itself for an extended period.
Market players who get it wrong can also have an influence on perpetuating certain market direction. As they get forced to exit their losing trades as soon as possible, they make the situation even worse by selling their stocks. As more investors seek to speculate a trend to make a profit, the market gets saturated, the result being a temporary reversal of the trend.
The balance between supply and demand is one of the most dominant factors of influence. These two indicators affect businesses and consumers alike, and they have an effect on financial markets. In commodity markets, for instance, supply is determined by a physical product. As supply and demand are continuously changing, prices follow these fluctuations, thus influencing market players.
This dynamic is similar to all markets. Stocks have fluctuations on both short and long term, and these variations create market direction. Whenever there's a threat of supply drying up, prices are going to rise, as people will be willing to pay more for those goods. If a large group of sellers makes the decision to enter the market, the supply is going to increase, the most likely result being a decrease of the prices.
Trends are created by the effects of all these factors which are tightly interlinked. The government has an influence on the market evolution through its fiscal and monetary policy. These policies create ripples in the international environment, therefore affecting global transactions. Speculation and expectation lead to price variations based on simple assumptions and extrapolations. Changes in supply and demand generate market trends, as they drive changes in the mindset of buyers.
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