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Who or What Impacts the Shape of Market Trends

17 Jan, 2022

Who or What Impacts the Shape of Market Trends

Trading in the stock market is a good way to generate income - direct or passive. Several people trade as their day job and profession, while others trade as part of their investment strategy. If you're looking to start trading in the stock markets, then a Free and the Fastest demat account opening with SHAREPA can help you kick start your investment journey. If you're a day trader and professional trader, you can benefit from the Flat ₹20 per order competitive pricing at SHAREPA - Fastest stock trading platform in india. Novice or not, understanding the stock market and the works is crucial to successful trading. Market Trends play a big role in how stocks are traded. Understanding market trends and who or what impacts the shape of market trends is important for every investor.

What are market trends in the stock market?

Stock prices or Share prices are volatile. They trade at different prices - highs and lows - and at times the difference is negligible. This shifting stock price upwards or downwards over a long period can be defined as a market trend. Technical investors often conduct historical trend analysis to assess the stock performance before trading in those shares. Now imagine this not for one, but the overall share market. These trends are the general direction the market moves in. When the stock prices climb and continue to climb it is called an upward trend. When the price pattern of a stock falls and continues to fall it is called a downward trend. If stock markets see these trends daily, then understanding the factors that determine these market trends is equally important.

What Impacts the Shape of Market Trends?

Government Policies

Governments globally have a responsibility to their people and economy to maintain the integrity of the markets. Fiscal and monetary policies instituted by the central banks of governments have a major impact on the market trends. The monetary policies of a government regulate the amount of investment open to the markets around the world. Governments regularly alter the interest rates. With a low-interest rate, spending typically rises. However, prices tend to increase at the same time and this tactic pushes economic growth. While in some cases the economy may see some growth, the market has many forces in play. Whereas, higher interest rates and taxes may cause a long-term fall in the market as economic spending isn’t as much. Over the years, investors have studied how these policies affect market trends.

Any news around the policies creates buying and selling activity among investors and traders, creating short-term trends. However, as the policy's impact is fully understood, traders ease this frenzied trading activity, thus creating long-term market trends.

International Transactions and Relations

International trade relations between countries, the balance of payments, and transactions between countries affect market trends. The balance of payments (also known as the balance of international payments) of a country is the difference between all money flowing into the country in a particular period (e.g., a quarter or a year) and the outflow of money to the rest of the world.

More exports from a country and its enterprises equal more foreign currency entering into the country. This makes the currency and economy stronger because these investments or earned revenue are reinvested in that country's financial market itself. The more a country imports, the currency flows out, thus weakening the economy.

The best way to gauge an upward market trend or downward market trend is to look at the currency markets of other countries. When the value of a country's currency is weak, investors prefer not to invest in companies of that country. Any profits of this investment will pretty much be negligible due to weak currency. You can easily invest in SHAREPA the Best currency trading platform in India

Demand and Supply

Let's dial down the basics. When the demand for a product or currency is high, it also drives a higher price - trades at a higher value. Add to that a finite supply of the commodity, product, or currency; it creates an even higher price point causing an upward trend and long-term rising market trend. Now if the supply remains constantly stable with minimal fluctuation, commodity or currency will trade at a price depending on demand, but it won't cause an upward market trend. When you flip the scenario, any commodity, product, or currency in high supply can cause a price fall. When does this play a major role? When it comes to commodities such as oil, gold, gas, cotton, and more. The price fluctuation and demand-supply effect in this market affect companies trading in these commodities or their products. Investors and traders who trade in the stock market, also study the market trends in the commodity market to make trading decisions. A balance of supply and demand affects the market trends and how investors respond.

Market Speculation and Expectation

“Market sentiment is low” a commonly heard phrase is also a key factor that shapes market trends. Analysts, consumers, investors, economists view the economy from different lenses. Government, industrialists, and politicians speculate economic growth and market health, thus formulating strategies on how to invest. traders and investors conduct technical analysis, research information based on government policies, international transactions, and speculate the market movement. If a large number of investors follow this speculation, the stock market trends begin to turn and move. This could become a long-term trend too. Traders and consumers act in the present based on future speculation of market trends, thus creating a current market trend that may be optimistic or cause a downward trend in the market.

When trading in the stock market, no one factor can swing the market in an absolute sense. These are a few of the factors that cause price fluctuations in the market. These are the factors that traders and investors assess when buying and selling stock, thus shaping market trends.

Also take a look at 7 tips to invest in stock market for beginners to know more about trading

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