Why do financial markets move
To profit from trading over the long term, you must understand why financial markets move.
If you understand why financial markets move, you can anticipate how the prices of financial instruments will move.
Chart indicators can help, but relying on only them will cause you to miss valuable opportunities for profit.
Basically, markets move due to changes in buying and selling pressure. In other words, supply and demand.
If buy orders exceed sell orders, prices rise; if sell orders exceed buy orders, prices fall.
Traders can determine whether to sell or buy by identifying the factors that caused changes in market buy/sell order volumes.
There are many factors that move market prices, and these differ across financial markets.
Because different markets are driven by different factors, traders are well served to focus on one or two markets and trade as experts in those markets.
Becoming a market expert allows you to react to market changes and time your trades more effectively.
As an example, factors that move USD/JPY include
- Japan’s interest rates
- US interest rates
- Japan’s economic outlook
- US economic outlook
When new news is released, each trader’s perception of the factors moving USD/JPY changes, leading to new buy/sell orders entering the market as a result.
For example, if the US economy strengthens compared to before, buy orders increase and USD/JPY rises.
Technical analysis alone does not move prices, but if many traders believe in chart patterns, those patterns can move the market.
For instance, if many traders believe that prices above the 10-day moving average will continue to rise, buy orders increase, and the price is predicted to continue rising above the 10-day moving average.
The key is not that the 10-day moving average causes market rise, but that being above the 10-day moving average encourages buy orders, which pushes prices up.
Understanding the factors that increase buy and sell orders thus leads to market forecasting.
The strength of buyers versus sellers, and the extent of how far prices will move up or down, become material indicators. Understanding how other traders react to news and chart patterns is a key to improving trading performance.
Turn Trading trains traders to manage company capital. Visit the site to receive an Excel trading log form and a book on mental control.
× ![]()
