What are the main factors that move the market and why?
This is gonna be a long one, please don’t try to hold your breath while reading it!
Fundamentally? Technically? Psychologically? I will answer all three to the best of my ability:
Fundamentally there are several factors that can affect the market. Currencies are affected by different news events and other markets. As a currency trader, one thing that you should always keep your ear open for is talk about interest rates. High interest rates cause global money to flow into a country. Inversely, low interest rates cause money to flow out. The global stock markets can affect currencies, depending on what session you trade, you should always know what is going on in the corresponding stock market. Commodities can and will affect currency prices, some commodities affect some currencies more than others. The AUD/USD is tied heavily to gold, and the USD/CAD is tied heavily to oil. There are many news releases that come out every day that can move prices (usually short term IMO) so you should always consult an economic calendar before you start trading. Some news events will affect the markets more than others, Non-Farm Payrolls probably will affect them the most. They come out on the first Friday of every month. I suggest you be somewhere else, playing golf, flying a kite, whatever.
Technically, there are a whole host of indicators that can move prices. How do indicators move prices you ask? Well, the more traders that are looking at an indicator and trading from it, the more it will move the market. The indicator that will change the direction of price over and over again is simple support and resistance. Most traders watch support and resistance levels and use them to help their trading decisions. The more obvious and respected areas of S&R will usually control price more than others.
In my humble opinion, nothing affects the market like mass psychology. Generally the markets will conform to the psychology of the masses. If mass psychology is very bullish traders may ignore bad news and give good news more than it deserves. If traders are bearish, they may ignore a bit of good news and opt to trade the bad news. They may even go so far as to interpret good news as bad news or vice versa. But how do you measure mass psychology? I think I may be alone here at babypips but I am a big believer in the Elliott wave theory. In the 1930s his Elliott gentleman found that markets move in predictable patterns which correspond to investor Psychology. There are several authorities on the subject today, Robert Pretcher (Founder of Elliott Wave International) being my favorite. You can also get a very basic Elliott education right here at babypips.com, see the link below:
Elliott Wave Theory | 10th Grade: Elliott Wave Theory | Learn Forex Trading
I hope that this expiation was enough to satisfy but not too much to confuse. You will need to take what I have written and further research much of this yourself. Pips, like your high school algebra teacher require homework.
Happy Pipping 