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Traders and investors can make money by capitalising on trends. The movement from one price to another is what generates gains and losses, whether the time frame is short or long, the market is trending or rangebound.
Long-term trends and short-term volatility can be attributed to four main market movements: these are government, foreign trade, speculation, anticipation, and market supply and demand.
The ability to predict future trends depends on understanding the role that these fundamental market movements play over a period of time.
Government trends
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The government exerts considerable influence on the free market when indices trading. Government and central bank fiscal and monetary policies have far-reaching effects on the global financial system.
The Federal Reserve of the United States can control economic growth by raising or lowering interest rates. The term for this is "monetary policy."
Fiscal policy is the government's approach to reducing unemployment and maintaining price stability through increased or decreased spending.
Governments can affect the inflow and outflow of investment by changing factors such as tax rates, interest rates, and the availability of currency on the open market.
International trade and transactions
A country's economy and currency value are impacted by the ease or difficulty of making international money transfers. The economy and currency of a country weaken when more and more of its citizens withdraw their wealth.
If a country relies largely on exporting, whether of goods or services, that country will have a steady influx of foreign currency. The reinvestment of these funds has the potential to boost the economies and financial systems of those countries and thus the value of indices trading.
Market speculation
The financial system relies heavily on speculation and anticipation. Consumers, investors, and politicians all make decisions based on their predictions for the economy's future, which can lead to a wide range of outcomes.
Future behaviour is predicted by current actions, which in turn influence future developments. When trying to get a read on how various demographics feel about the state of the economy, sentiment indicators are often looked to.
These indicators, along with the results of other types of fundamental and technical analysis, can be used to establish an opinion on the likely future rates and directions of price trends.
Supply and demand forces
There is a push and pull dynamic in prices caused by supply and demand for goods, services, currencies, and investments. Rates and prices shift in response to shifts in supply and demand.
If there is a shortage of a commodity that people want to buy, the price will go up. A drop in price is likely if supply grows faster than demand. If supply is flexible, prices can rise and fall in response to changes in demand.
When market forces act together
It is vital to understand how these aspects interact to generate trends, as they can influence both short- and long-term market swings. All of these fundamental aspects are distinct in their own ways, but they are interconnected in important ways.
Changes in supply and demand, as well as government regulations, can influence international transactions, which in turn influence speculation, and so on.
Also read: How to find a reputable forex broker
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