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The nature of price movement on the financial market
Activities like financial trading require a lot of effort and skill on the part of users. The primary task of every user working on the market for financial assets is to correctly forecast rate movement. This process comes in a variety of forms and is the most important aspect for generating profit. That being said, without having the necessary skills in regards to the direct regime of constructing rates, it isn’t possible to conduct effective analysis. On that front, we’ll provide you with the materials you need, going over the primary drivers and factors that directly from the nature of price movement on the financial market. Other than that, we will provide you with information on how to take advantage of various types of analysis for identifying the vectors of asset price fluctuation, so that, without a doubt, you will be able to trade with the highest level of sophistication.
Many professional traders and market analysts say that rate movement is chaos. The best example of this being the book of the internationally-renowned expert, Bill Williams, “Trading Chaos: Maximize Profits with Proven Technical Techniques”. In this book, Williams describes market fluctuations as chaotic movements that are forecastable to a certain extent. Of course, although these concepts practically opposed to one another, that is how it actually is. If a layman took a look at the chart of any financial asset, they wouldn’t be able to understand how the rates are formed and what influences their movement. However, a professional investor would notice a great many patterns and principles laid-out on the charts before them, thus enabling them to identify in advance the direction the market is going. The changes of these forecasting patterns and approaches, in particular, are the primary task of any potentially successful trader. Let’s take a more in-depth look into the nature of price fluctuation on the financial market and the approaches used to identify patterns to generate forecasts for trading contracts.
What makes financial asset price move?
So, when we open an asset chart, we see price movement that varies relatively widely and in different directions. It isn’t easy to comprehend without knowledge of the basic drivers that influence these processes. Since the time when the financial markets first began, experts worked out a basic group of factors that cause rates to move.
Today, this list takes the following form:
● Economic drivers – These are considered the classic economic factors, such as the supply and demand of a specific asset on the market or, simply put, investor interest in the financial tool.
● Psychological – In this case, you need to view the market as a social sphere of human activity, in which psychological aspects are of specific interest. The so-called crowd psychology, when investors start to buy some asset based on the specific actions of a large number of other investors, thus attracting even more participants in the process, and its price grows dynamically. Experts relate the following with psychological drivers: the release of an innovative product on the market, specific asset trends, these days it’s cryptocurrencies, investors actively jumping on the bandwagon of a market trend. This includes the opinions and market evaluations of recognized professionals and authorities.
● Technical – This is the longest list of indicators that influence asset price fluctuation. This group of drivers includes various patterns that form highly cyclically: patterns, wave models, market trend movement levels, specific market indicators that enable you to accurately forecast price movement, total trading means, the activity of the vast majority of investors.
● Fundamental – Nearly all experts on the financial market say that fundamental indicators, in particular, are the main drivers that influence market fluctuations. In this case, they mean factors related to statistics and news: indicators from financial market sectors and economics, various geopolitical news that has an influence on shifts in the world economy, the currency politics of central banks from financially influential countries, regulations and taxation policies from state authorities that affect the market.
It is worth noting that any of the factors listed above and market drivers are highly correlated and codependent on each other, as follows, the indicators complement one another, forming the most effective trading forecasts when conducting operations on the market.
When analyzing the nature of price movement on the financial market, it is worth pointing out that it is a relatively complex and labor-intensive process to directly calculate rate charts, despite the high level of automatization. Typically, influential regulators and highly-trusted analytical agents provide liquidity. The concrete calculations are difficult for a layman to understand. Let’s just say that the chart indicator of any asset is compiled based on over than a hundred different factors and technical data.
Such a wide range of primary drivers of market movement enable traders to construct many tailored trading strategies and forms of analysis, thus leading to consistent and positive trading results. We recommend taking the time to consider in-depth these forecast generation regimes based on market drivers.
Types of analysis and trading strategies
Through the classification of trading approaches and drivers of movement on the financial market, analysts have identified two primary directions of analysis that are used widely today to evaluate rate liquidity:
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This way of evaluating the market is constructed based on a combination of analysis and identifying important technical data on the market. In this case, the direct indicators of rate price are used, which are, as we mentioned earlier, can be used as tools for forecasting particular basic patterns when the market is moving chaotically. When conducting technical analysis, a wide array of specialized tools and analysis systems are used, forming different types of trading strategies:
● Analyzing chart systems – At their root, these strategies take the form of a variety of geometric figures, lines, rays, and zones. Good examples of effective chart strategies are trading on trend levels, trading systems based on consolidation and channel zones and particular chart patterns such as “Pennant” and “Flag”. The simplicity and high level of accuracy of chart strategies have led to their wide popularity among professional traders, as well as with online investors. If you include several chart systems for analyzing the market in your arsenal, you will get more accurate signals for forming trading positions under practically any market condition. At the same time, it is worth noting that financial trading gurus likewise recommend studying market chart patterns because they highly influence the social aspects of asset price movement, such as supply and demand.
● Indicator systems – This kind of trading system came about through the process of digitization of the technical processes of the financial market. The automation and improvement of technology have lead to the appearance of specialized technical services that are automatically able to process and assess large amounts of information and market data. Today, there are several thousand of these indicators available to users, creating a simple way for any trader to combine tools on the asset chart to set up many different trading strategies. On this point, it is an interesting fact that thanks to the active growth of technology today, indicators can be generated from both the fundamental and technical analysis of data practically without any need of complex calculations and market analysis on the part of the investor. Trading professionals today consider indicator strategies to be the simplest and more effective approach to forecasting rates.
● Price Action systems – Strategies of this type include approaches that are based on the highly-cyclical patterns of rate construction. In this case, we are talking about approaches such as market wave models and Japanese Candlestick patterns. These forecasting patterns come in many different formats and some of which predict up to 90% of their trading forecasts accurately.
As you can see, technical analysis and its multitude of forms can vary quite widely. At the same time, studying these trading systems not only expands your tools for forecasting the market but also creates the opportunity to better understand the nature of shifts in market movement.
Every financial asset is closely influenced by leading fundamental economic data. We have already touched upon the main drivers of fundamental analysis. We will now provide a wider array used for generating effective trading forecasts. So, the most important factors for generating asset rate price are:
● Financial measures taken by governmental economic regulators and authorities
● Economic statistics from governments, financial and industrial sectors of the market
● Indicators of resource supply
● Indicators of actions taken by large global corporations
● Data on the banking system
● Political strategies of governmental organs
This list could go on without end, the market reacts to even the most seemingly meaningless and insignificant news and data. However, within this chaos, there are patterns that can be used to identify asset price fluctuation with a high level of accuracy. In particular, the leading fundamental trading strategy used is the system of “trading the news”. The strategy is based on the market reactions to good and bad data. The logic of it is simple, positive news leads to the rate increase, and bad news drives the price down! Therefore, if you have an effective news service at your disposal that notifies and give you a preliminary overview of statistics and other fundamental data, you can forecast the reaction of the financial market to the publication, as well as the direction of price movement of a particular financial tool. A simple example would be that oil reacts strongly to changes in supply. If the American oil reserve is running low, then the price of the raw good will increase. On the contrary, if the reserves are high, then the price of oil actively drops! As you can see, the social factors that influence the market are actively at play here. By conducting this type of analysis, investors can produce impressive trading results.
If we put aside all the scientific and technical factors that influence the market, then we could say that rate movement is directly controlled by investors themselves. Their interest in specific assets and resources alone can cause prices on the financial market to move in either direction. However, every trader should know and understand that these drivers can change the opinion of market participants. As you’ve no doubt noted, many different factors are at play here, although the primary one is the supply and demand of the assets on the market.
Researching all the economic and technical factors is the number one task of all traders who are aiming for success. Expanding your financial toolkit for analyzing the rates of trading tools is key to generating large profits stably!
“General Risk Warning: Binary options and cryptocurrency trading carry a high level of risk and can result in the loss of all your funds.”
Contrary to what you may believe, there is more than one financial market. Some people initially consider only the stock market, but that’s just one form.
To become confident navigating through the world of investing, it’s important to understand basic terms and concepts.
At a basic level, financial markets are the exchanges in which people trade financial securities, bonds and commodities, at low transaction costs and prices that reflect supply and demand.
The purpose of a financial market is to set prices for global trade, raise capital and transfer liquidity and risk.
The Stock Market
The Stock Market is just one of many financial markets, the one I expect you’re most familiar with.
It is based on a series of exchanges in which large corporations ‘approach’ investors to raise capital and expand their business.
Stocks are shares of a public corporation’s ownership that are sold to investors through broker deals.
The investors profit when the companies increase their earnings. This keeps the economy moving forward.
It’s easy to buy stocks, but not so easy to know which ones to buy, from where, and at what time.
The Bond Market
The Bond Market is where organisations obtain very large loans. When stock prices rise, bond prices fall.
There are three types of bonds: treasury bonds, corporate bonds and municipal bonds.
Bonds also provide some of the liquidity that is integral to a functioning economy.
It’s important to understand the relationship between treasury bonds and yields, as when bonds go down, the yields go up to compensate.
It’s like a ripple effect that impacts all aspects of the financial system.
When treasury yields fall, so does the value of the dollar. This makes import prices rise, which can trigger inflation.
When analysed, treasury yields can predict the future.
The Commodities Market
The Commodities Market is where companies offset their future’s risk when buying or selling natural resources.
Oil is the most important commodity, with widespread use across the globe. If oil prices rise, in turn you’ll see the effect in gas prices about a week later. If those two stay high, food prices will be impacted.
Just how big are the markets?
The total global financial assets market is over $294 trillion.
That includes US$69 trillion in the stock market, with the rest made up of a wide variety of government and corporate bonds.
Bear in mind this already large figure does not include property, which is an additional asset class in diversified portfolios.
It also does not include the derivative market, which some estimate to be worth $1.2 quadrillion.
I’m not even sure what that is, but it sounds like a terrifyingly high amount.
By breaking down each market into segments, you can drill into the details of what is happening in an economy.
To learn more, you can find all of our analysis and commentary on global markets on this page.
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Markets & Money is probably not like any other investment newsletter that you’ve read before. By subscribing, you’ll tap into a worldwide network of analysts and researchers who are thinking and writing about the financial world in an eye opening way. All of them are working to deliver you unique, useful and unusual investment ideas that you can put to work in your own financial plan.
All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment.
The value of any investment and the income derived from it can go down as well as up. Never invest more than you can afford to lose and keep in mind the ultimate risk is that you can lose whatever you’ve invested. While useful for detecting patterns, the past is not a guide to future performance. Some figures contained in our reports are forecasts and may not be a reliable indicator of future results. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.
Stock Price Movement Prediction from Financial News with Deep Learning and Knowledge Graph Embedding
- Yang Liu
- Qingguo Zeng
- Huanrui Yang
- Adrian Carrio
As the technology applied to economy develops, more and more investors are paying attention to stock prediction. Therefore, research on stock prediction is becoming a hot area. In this paper, we propose to incorporate a joint model using the TransE model for representation learning and a Convolutional Neural Network (CNN), which extracts features from financial news articles. This joint learning can improve the accuracy of text feature extraction while reducing the sparseness of news headlines. On the other hand, we present a joint feature extraction method which extracts feature vectors from both daily trading data and technical indicators. The approach is evaluated using Support Vector Machines (SVM) as a traditional machine learning method and Long Short-term Memory (LSTM) model as a deep learning method. The proposed model is used to predict Apple’s stock price movement using the Standard & Poor’s 500 index (S&P 500). The experiments show that the accuracy of news sentiment classification for feature selection achieved 97.66% by model of joint learning, the performance of joint learning is better than feature extraction by CNN, the accuracy of stock price movement prediction through deep learning achieved 55.44%, this result is higher than traditional machine learning. This model can give the investors greater decision support.
The authors Yang Liu would like to thank all the reviewers for their insightful and valuable suggestions. This work is supported by the China Scholarship Council (CSC).
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