Knowing What Causes Forex Trends

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?

In all markets there are buyers and sellers giving conflicting opinions and positions. These conflicting opinions about the state of the markets from the herd or the collective are what ultimately define trends.

Let’s look at the factors that define and influence market 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.

At anytime a government in a country can undermine or reinforce confidence and the currency it holds. Central Banks have a history of intervention in the markets and every time in the past have been successful so far. You have to wonder what happens the one time they get on the wrong side of the trad.

All traders are following the flow of price and the reflection of that through indicators so there on certain expectations on traders as a whole on what is going to happen. The thing is in an instance the trend can change as everyone will experience the same emotions. This creates the herd. Also be aware at news event releases or sudden unexpected news as it can change the trend in an instance.

In times of high instability investors in this uncertainty become more risk adverse and prefer hard currency or gold. People are willing and able to take on greater risk in favor of higher returns during times of stability.

It is also vital to focus on the market makers and the polices of the Central banks as you rarely want to be trading against these sides. Both market makers and Central banks and to a lesser extent financial coalitions and hedge funds have the power to turn the trend quickly and you do not want to be caught on the wrong side of this action.

Under normal circumstances the markets are normally drive by price action, media hype and both fundamental and technical levels in the market however there is always the chance that an unforeseen event like 9/11 or a country currency being devalued overnight as in Argentina or Russia. The collective positions and emotions are what move markets and the more you can understand the psychology of individual traders and groups as a whole the better your edge in the markets.

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.

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