Price moves can be for many weeks, months or even years, creating a bull market. Similarly, they can also move down, creating a bear market. Even if the price moves can be as short as few minutes or as long as decades, it is how we defines a “Trend” that is most important. However, ideas and reasons behind every trading decision can make the difference between success or failure.
The long term directions can be identified by four primary factors.
1. Government Policies
2. International trades
4. Supply and demand
Government Policies: It is widely accepted that every time there is a decline in interest rates, Business activity grows and vice versa. When a Country is growing less than the expectations, its central bank reduces the interest rates to encourage growth. Lowering rates stimulates business activity. At the same time, Central bank raises the interest rates and dampens the economic activity to control inflation. Hence, Changing the interest rates has a meaningful impact on the flow of investment money between different countries, on international trade, on the currencies and business activity.
International Trade: When a Country buys gold it pays in its domestic currency. This is the same as selling the same. It weakens the currency. When a country continuously imports more than it exports increases trade deficit and weakens its currency. A country that increases its exports strengthens its currency and its economy.
Expectation: If investors think that stock prices will rise, they buy them, causing prices to rise. Expectation can lead the economic recovery however there is no statistical data to support the same.
Demand and Supply: A shortage or anticipation of any shortage of any product causes its prices to rise. At the same time an oversupply of a product result in declining price. When there are lot of buyers willing to buy a particular stock or security at any price, it creates demand for that stock or security, resulting in rise in price. At the same time, when people just wants to offload their stock of shares or security no matter what the price is, creates oversupply which results decline in prices.