What could be simpler – some event happened, the price made a reversal and traders opened new deals in the direction of the trend.
Almost everything, from the financial result of the company and the economic situation in the country, to scandals and rumors related to the management of the corporation, can affect the price of an asset.
At the same time, different news affects the trend in different ways, one news can cause a long-term trend change, while another can change the price for only a couple of days.
It all depends on what kind of influence this or that event has – fundamental or purely psychological.
Events with fundamental impact
1. Announcement of the financial condition of the company and its results for the reporting period. Falling sales, falling or increasing demand for a certain type of goods., Crop failures, reduction in production.
Government sanctions against the company, etc.
That is, everything that can really affect production and cause a reduction in profits, or vice versa, show that the company is dynamically developing and has good prospects for making this very profit.
2. Changes in the economic situation in the country, decrease or increase in such economic indicators as GDP, balance of payments, unemployment, industrial production, etc.
At the same time, psychological influence is exerted by:
1. News concerning top officials of the state or company management – diseases, 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 is possible to predict how long it will influence the trend; fundamental factors, as a rule, have a longer impact on the price.
For example, if there is a message about a decrease in profits or even losses of a company, then this news will reduce the price of securities for a long time, at least until more optimistic news appears.
Reports of GDP growth , lower inflation and improved balance of payments have a similar lasting effect on exchange rates .
At the same time, it is difficult to expect that the downtrend, caused by the president’s illness or rumors about the divorce of the head of the corporation, will last longer than a few days.
After all, these events do not have a strong impact on the economy or the state of affairs in the company itself and the rates are reduced only under the influence of psychological factors.
How to use this fact in trading?
Evrything is quite simple, depending on what event caused this or that trend, you need to plan the duration of your deals.
If the price changes under the influence of fundamental factors , then we hold the trade as long as possible until the first calls for a reversal.
In the same case, if the trend was formed on the basis of psychological pressure or dubious news, you should not hold it for more than a day.
It is clear that everything depends on the specific situation, but dividing the news into the above-named categories may already serve you as a kind of guideline.