Understanding Market Forces and Types

Understanding Market Forces and Types

Submitted by adil on Tue, 06/10/2014 - 10:26

What Drives the Market?

Today’s financial markets are very dynamic in nature. The market trend is principally controlled by the supply and demand of a particular asset. The price will become higher as the demand increases, and will become lower as supply increases. This concept coupled with other factors forge any one of the following market conditions, every trader must understand them as different strategies suit different market conditions.

Types of market environments:

Trending markets: In this condition, the market keeps moving forward by repeating a specific pattern. A particular price trend starts repeating itself after a certain amount of time. This scenario is easy for new traders to make profits, as there are no serious challenges in predicting future market trend.

If the asset price is increasing, this market condition is referred to as bullish trend. On the other hand, if prices are going down, this trend is referred to as being bearish. Common terminologies include secondary trends (short-term trends), primary trends (mid-term trends) and secular trends (long-term trends).

There are many tools available for technical analysis to make profits in this market condition. Using such tools, a trader can determine correctly whether a trend has just begun or if it is part of a much larger price movement. The most popular of the available tools is the “moving average” indicator.

Range markets: In such a market, the prices are moving to and fro between upper and lower boundary values. This can happen in both bullish and bearish conditions. This is usually due to nearly equal supply and demand of the asset; the market is waiting for a stimulus to breakout from the range. The price fluctuations are unavoidable as the two market forces try to take control of the whole market. Bollinger Bands indicator is the best tool to trade successfully in such conditions.

The Bollinger Bands comprise of three lines, the center one is the exponential moving average while the other two extreme lines show standard deviation price ranges. The separation between the three lines is inversely proportional to the market volatility.

Volatile markets: When the price of an asset moves about without any specific pattern and is controlled by uncertainty, the market is termed to be volatile. The reason is the uncertainty in the market forces as to which force will take control of the market. The factors remain undecided, and this introduces high risks in the trading the asset. For professional traders, this also means opportunities for high profits.

There are many volatility indexes available for traders. Commonly called VIX or “fear index”, the CBOE Market Volatility Index is the most popular one, this index predicts the market volatility for the next 30 days.

Highly volatility means market can move in any direction suddenly, but is generally an indicative of bearish market trends. Low volatility is a sign of consolidated market environment which encourages bullish conditions.

If the trader is successful in correctly identifying the prevalent market conditions, the chances of making profits are considerably considered. Therefore, knowledge about these market conditions must be part of binary option business training for every trader.