A trend is a tendency that emerges during a long period of time in economy or any other area marked by a stable situation.
Historically, most traders perceive the trend literally, only as a line in a price chart, overlooking the essence of processes that stand behind the graphical picture. It is balance sheets. Major market players, primarily legal entities (banks, transnational corporations, hedge funds), have to prepare a balance sheet for transactions they made on the trading floor during a certain period of time. Therefore, the time structure for which balance sheets are made is quite a significant factor for understanding trends in any market (for more details, please read the beginning of the article.
The figure below describes how a trend is formed. It can be applied to any trading floor.
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For example, the quarter is the minimum investment period for stock markets. Such stock exchanges as NYSE and NASDAQ hold the so-called month-long Earning Season once a quarter, four times a year. During this period each company traded (listed) in these exchanges has to provide reporting. The report includes information about the company's profits, losses, dividends and forecasts for the next investment period.
On the one hand, the report so issued is always a catalyst for market movement, and market players are focused on those companies that report during the current trading session. On the other hand, it is during the Earning Season that most trends change their direction. It is connected with the logic of operation of institutional market players that will be dealt with a little later.
NYSE. S&P 500 movement before and after the Earning Season.
The Earning Season on NYSE. The figure below shows part of the list of companies that reported on 07.28.11.
Reports on mercantile exchanges will be linked, this way or another, to the seasonality factor because raw materials involve harvesting which, in turn, depends a lot on weather conditions and seasons. This is why in the markets of colonial goods such as coffee, orange juice and in commodities futures for soy beans, cotton, flax, wheat etc., the seasonality factor plays a rather significant role and should be taken into consideration.
Unlike the stock market, the inter-bank forex market and the currency futures market have no official reporting seasons. The interbank market is not linked to harvesting seasons because currency movements do not depend on seasons. Nevertheless, there is a time structure in this market, too. It shows when banks make their balance sheets for a certain time period.
To be continued...
This material has been prepared by the Volumes Department of the Мasterforex-V Academy
