Market rationale behind a trend strategy
Market dynamics are primarily propelled by information, with market participants adjusting their positions in response to new data, thereby impacting the prices and volumes of financial assets, creating a continuous cycle of information-driven trading activity (Figure 3.2):
Figure 3.2 - An information feedback loop in market dynamics
Let’s delve into the market dynamics by analyzing the elements of Figure 3.2:
- Information
- Market participants
- Price/volumes
Information
The relevant financial information for algorithmic trading can be classified as in Figure 3.3.
Figure 3.3 - Financial information classification
As you can see in Figure 3.3, the information that influences the financial market can be of a technical or fundamental nature. We will talk about technical information when it is directly related to the prices or volumes of financial instruments...
