Frequently traders discuss the individual psychology of forex traders but what are the factors that determine a market trend? How does the collective impact of this market psychology as a whole?
In all markets there are buyers and sellers who give contradictory views and positions. It is these conflicting views on the market situation of the herd or the collective that ultimately determine the trends.
Let us now discuss some of the factors that influence and determine market trends.
When looking at the foreign exchange market in the eyes of fundamental analysis, it is important to remember that a multitude of factors can convert trends and influence market direction. Any unforeseen event, whether economic or political, can shake markets and trigger trends at one point or another.
For example, a change of government in a country can enhance or undermine the confidence that affects the currency it represents. Certain measures taken by states or central banks or that directly strengthen or depreciate its currency over others, lead to fluctuations or general trends in the interpretation of the traders as a whole.
All traders follow price flows and reflect them through indicators so that there are certain expectations for traders as a whole about what is going to happen. The thing is in one case the trend may change as everyone will experience the same feelings. This creates the herd. Also, be aware in news event editions or suddenly unexpected news as it can change the trend in one case.
In times of high volatility, investors in this uncertainty become more risk averse and prefer hard currency or gold. People are willing and able to take a greater risk in favor of higher returns in times of stability.
It is also vital to focus on market makers and central bank policies, as you rarely want to negotiate with these parties. Both market makers and central banks and, to a lesser extent, financial alliances and hedge funds have the power to change the trend quickly and you do not want to get on the wrong side of this energy.
Normally, markets are usually driven by price action, media campaigns, and both fundamental and technical levels of the market, but there is always the possibility of underestimating an unforeseen event such as 9/11 or a national one. currency at night, as in Argentina or Russia. Collective positions and emotions are what drives markets, and the more you can understand the psychology of individual traders and groups as a whole, the better your edge in markets.
The currency market is now much more unpredictable and fluctuating than it was ten years ago. Most information you have, including daily analysis of trends and factors that influence them, expects a higher chance of profit.