5 Main Factors That Move The Market
To trade successfully, we looked at the key factors that have the most significant impact on the way the market move - either up, down or sideways. We have narrowed down that the direction of the market is primarily determined by 5 main factors. They are:
- Market Seasons & Cycles
- Sector Rotation due to money flow
- Interest Rates following monetary policies
- Earnings Announcements and Results
- News and Macroeconomic Data
Knowing them would enable the trader to analyse and monitor the market accurately and set up his trade accordingly
Market Movers in Detail
Market Cycles: There is an undeniably reliable cycle and seasonal nature of movements in individual stocks, sectors, and industries. Like an almanac, TraderPA analyses the 5, 10 and 15-year performance of stocks and scans for high probability events where a stock constantly achieves a bullish or bearish direction on the particular day/week.
Sector Rotation: Smart money flows from one sector to another as a rotation based on the economic cycle. Naturally, the sector-related stocks are more volatile when more money is moving in or out of the sector. TraderPA tracks the money flow for different sectors and helps to identify where the money is going.
News: Politics, Scandals, Product launch, Contracts etc will always influence the price of the stock in either direction. This is usually very emotional and price can move very drastically as fear and greed kick in. TraderPA looks out for news and we suggest avoiding trading during periods where news could impact your strategy.
Interest Rates: Interest rates are less directional influencing to the price of the stock. However, it gives a good prediction on where the money is going; flight to Safety (Bearish) or Risk (Bullish), and a reliable forecast of the market. TraderPA monitors the 2, 5, 10 and 30 year Treasury Interest Rates to identify any possible major changes in the market direction.
Earnings: Company Earnings can cause stocks to move in a very unpredictable direction. TraderPA suggests that traders avoid trading against the backdrop during earnings period as price changes can be very drastic with each earnings announcements and the movements in sympathy in related peer stocks.
How to Use TraderPA
TraderPA recommends a top-down approach when scanning for a stock to trade, working from having an overview of the Market, then scanning down through the Sector, Industry, Diversified Groups and finally to the Stock itself. For example
- Look for a high probability for the sector ETF in that week (US Market Research > Trading Plan) followed by high probability of stocks within the ETF having the same high probability, thus following in the direction of the ETF. This helps to achieve alignment between sector and stock, which in turn minimises the probability of the direction of the stock going against your trade.
- Monitor for any abnormal information (Interest Rates, News, Money Flow, Earnings) when putting the money in the market (adding risk), or keeping a losing trade (protecting capital).