Short-term and long-term signals in Forex and stock markets
Almost all exchange trading is based on various signals that cause a strengthening or even a reversal of the trend.
It couldn't be simpler: an event occurred, the price reversed, and traders opened new trades in the direction of the trend.
Almost anything can impact the price of an asset, from a company's financial results and the national economic situation to scandals and rumors related to the corporation's management.
At the same time, different news items impact the trend differently: one piece of news can cause a long-term trend reversal, while another may only change the price for a few days.
Everything depends on whether the event is fundamental or purely psychological.
1. A report on the company's financial condition and its operating results for the reporting period. This includes a decline in sales, a decline or increase in demand for a particular product, crop failures, or a reduction in production.
State sanctions against the company, etc.
That is, everything that can actually impact production and cause a reduction in profits or, on the contrary, show that the company is developing dynamically and has good prospects for obtaining this very profit.
2. Changes in the economic situation in the country, a decrease or increase in such economic indicators as GDP, balance of payments, unemployment, industrial production, etc.
At the same time, the following have a psychological impact:
1. News concerning the top officials of the state or company management – illnesses, scandals.
2. Terrorist attacks or other events that cannot cause real damage to the economy or production.
Duration of the event's influence on the trend
Depending on the type of event, it's possible to predict how long it will influence a trend. Fundamental factors tend to have a longer-lasting impact on prices.
For example, if a company reports a decline in profits or even a loss, this news will depress the stock price for a long time, at least until more optimistic news is released.
GDP , lower inflation, and an improved balance of payments
have a similarly long-lasting impact on exchange rates At the same time, it's difficult to expect a downtrend caused by a president's illness or rumors of a corporate CEO's divorce to last more than a few days.
After all, these events don't have a strong impact on the economy or the company's performance, and prices decline only due to psychological factors.
How can this be used in trading?
It's quite simple: depending on the event that triggered a given trend, you need to plan the duration of your trades.
If the price changes due to fundamental factors , then hold the trade as long as possible until the first signs of a reversal appear.
If a trend has formed due to psychological pressure or questionable news, don't hold it for more than 24 hours.
While everything depends on the specific situation, dividing news into the above categories can serve as a guide.
