Forex Learning: The Impact of Long Term Trends and Short Term
We know that there is a long-term trend as well as short-term trends. But with regard to time, how long the long term and the short term, this is debatable and there is no benchmark or guidance. Existing habits are used.
Long term, according to Dow theory and often used by investors, ranged from 1 year to 5 years. There is also a mention up to 10 and 20 years (bond market). While short term ranged from 1 week to 6 months.
Several factors influencing trends (government, international transactions, speculation and market demand law) lead to short-term and long-term fluctuations in the market. It is important for us to understand these factors in creating a trend. These factors have different but interrelated definitions affecting the market.
Government policies, such as proposed changes to expenditures or tax policies, as well as the decision of the Central Bank to change or maintain interest rates can have a direct effect on long-term trends. Lower interest rates and taxes encourage economic expenditure and growth. It has a tendency to make market prices higher, but the market does not always respond the same because other factors also play a role. Vice versa.
In the short term, an economic news release can cause significant price changes as traders and investors make buying and selling by considering the information or economic figures. The increasing impact of the news can create short-term trends, while long-term trends are developing as investors understand and absorb the impact of that information on the market.
International / Global Impact
International transactions, balance of payments and economic strength of a country are more difficult to measure on a daily basis, but they have a major role in long-term trends in the market. The currency market can be a rapid measure of the economic state of a country. The currency is strong then the country’s economy can be said good.
Currency value has a role in other conditions in the country. If the currency weakens, this will prevent investment in the country, as potential profits will be eroded by a weakened currency.
The Impact of Speculative Participation
The analysis and momentum obtained by traders and investors are based on information received from the above two effects. So it creates speculation as to where the price will move. When enough investors / traders agree on the direction of the market, the market enters a trend that can sustain it for years.
Trends can also occur because traders / investors are misaligned, forced out (cutting losses) and ultimately pushing prices into the flow.
But the circumstances following this trend may end. Due to the saturation of investors / traders or they want to realize the benefits.
Impact of Supply and Demand
Supply and demand affect the individuals, companies and financial markets as a whole. In some markets, such as commodity markets, supply is determined by the condition of physical products. Like oil commodities whose supply and demand are constantly changing, adjusting market prices for participants willing to pay for current and future oil prices.
When supply decreases or demand increases, long-term increases in oil prices can occur as market players try to outdo one another to get a limited commodity. Other markets have similar dynamics.