Traders often discuss the individual psychology of forex traders, but what are the factors that determine a trend in the market? How does the collective influence market psychology as a whole?
In all markets there are buyers and sellers who give conflicting opinions and positions. These conflicting opinions about the state of the herd or collective markets ultimately determine trends.
Let us now discuss some factors that influence and define market trends.
When looking at the forex market in the eyes of fundamental analysis, it is important to remember that a whole range of factors can change trends and influence market direction. Every unforeseen event, both economic and political, can shake the markets and cause trend changes in an instant.
For example, a change of government in a country can strengthen or undermine the confidence that affects the currency it represents. Certain measures taken by states or central banks or which directly strengthen or write off their currencies against others, leading to bullish or bearish trends according to the interpretation of traders as a whole.
All traders follow the flow of prices and their reflection through indicators, so there are certain expectations of traders as a whole about what will happen. The thing is in a case that the trend can change because everyone will experience the same emotions. This creates the herd. Also consider news events or sudden unexpected news, as this can change the trend in an instance.
In times of great instability, investors become more risky in this uncertainty 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, since you rarely want to act against these parties. Market makers as well as central banks and to a lesser extent financial coalitions and hedge funds have the power to reverse the trend quickly and you do not want to be caught on the wrong side of this promotion.
Under normal circumstances, the markets are normally driven by price action, media hype and both basic and technical levels in the market, but there is always the chance that an unforeseen event such as 9/11 or a country currency will occur overnight devalued as in Argentina or Russia. The 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 lead in the markets.
The forex market is now much more unpredictable and fluctuates than ten years ago. The more information you have, including the daily analysis of trends and factors that influence them, the greater the chance of profit.