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Technical Analysis of Financial Markets – Definition


A financial market is not substantially different from other markets, where goods and products are bought and sold. But instead of exchanging vegetables or clothing for a local or national currency, the financial markets focus on buying, selling and holding securities, products and financial instruments.

Financial markets have expanded exponentially in recent decades and now offer many different types of instruments.

Classification of Financial Markets
Forex Financial Market – (also known as Forex or FX Market )
Capital markets, such as equity and bond markets
Derivatives markets, such as CFDs (also known as Contracts for Difference)
Commodity markets, including gold, silver and oil.
Money markets, such as short-term debt.
Cryptocurrency markets, including Bitcoin and Altcoins.
Mortgage markets, which offer long-term loans.
Insurance markets – which transfer risk for a premium.
Financial markets

Source: MetaTrader 4, GBP / USD Daily chart, Data range: July 2018 to March 2020 – Made March 19, 2020. Please note that past performance is not a reliable indicator of future results.

Some of these financial markets are, by their very nature, more long-term oriented, short-term oriented or a combination of both.

The mortgage market, for example, is one in which many long-term loans are granted, while the money markets focus on the short term. Forex, stocks, CFDs and commodities can be traded in both the short and long term.

Professional traders can decide to participate in investments or transactions, depending on their approach and their trading style.

Financial markets have an important purpose for the economy and offer six basic functions:

Prices
Liquid assets
Efficiency (like transaction costs)
Loans
Cash flow information
Risk sharing
Financial institutions help facilitate the flow and circulation of funds within global markets and the financial system in general.

These institutions include commercial banks, investment banks, central banks, insurance companies, brokers (such as Admiral Markets) and also non-bank financial institutions (such as credit unions).

Always make sure to trade with a regulated broker:

technical analysis of financial markets

Characteristics of the Financial Markets
Amplitude: number of financial instruments. The greater the number of instruments traded, the wider the financial market.
Depth (DOM -Deep of Market): consists of the quotation of the purchase and sale orders of a given instrument which are awaiting execution.
Freedom: there are no barriers to entering or leaving the financial market.
Flexibility: prices are set according to the demand and supply of the financial market (international, Asian, etc.).
Transparency: possibility of obtaining information on the price of the financial asset.
No transaction costs
The assets are divisible and indistinguishable.

The International Financial Markets
In general, international financial markets seem to have been the engine of international trade and the global economy in general for the past 100 years. Especially in the past 25 years, when financial markets have become increasingly complex, sophisticated and important.

In the early 21st century, global financial markets have become more dynamic and have changed rapidly.

Today there are fewer exchange controls, capital controls, more global financial transactions and more payment systems in general.

There is also a rapid movement in terms of international capital flows, the development of new financial instruments (such as cryptocurrencies) and new digital technologies. In general, this is leading companies towards more open and advanced financial markets and methods.

Although the trends we talk about above are valid for financial markets in general, each financial market has its own distinct trends .

Finance and Financial Markets – Forex
The foreign exchange market is the important market in the world. In the last decades it has become very popular and in the last 30 years it has experienced enormous volume growth. Here is the trend explored in more detail:

1977 – $ 5 billion
1987 – $ 600 billion
1992 – $ 1 billion
2001 – $ 1.5 trillion
2007 – $ 3 trillion
2010 – $ 4 billion
2013 – 5.3 trillion dollars
2017 – $ 5.5 trillion
As you can see, the volume of Forex has increased by a factor of 1000 in 40 years. It also increased by 267% between 2001 and 2017 and by 40% between 2010 and 2017.

These impressive growth figures show how important the forex market is.

Technical Analysis of the Financial Markets – The Stock Exchange
Another trend could be found in global equity markets, where U.S. equity markets have become much more important than in other parts of the world.

The US stock market was a big winner in the 20th century, according to the book “The Triumph of the Optimists” (2002) written by Elroy Dimson, Paul Marsh and Mike Staunton. Their research indicates that there have been three major changes in the past 100 years:

The United States has gained a dominant position in the market.
The stock exchanges have been consolidated.
There has been a rotation of the secular sector (long-term market activity).
Here are some graphs showing information related to the world stock markets of 1900 and 2000:

finance and financial markets

Investopedia source – ” Triumph of the optimists
These graphs show that the US stock markets went from 22% in 1900 to 47% in 2000. Their share has more than doubled, reaching almost 50%.

Another country that grew in numbers besides the United States was Japan, with an increase in the share from 4% to 13%.

Most other regions have lost market share. The United Kingdom fell from 12% to 8% and the euro area from 25% to 13%. Some countries have disappeared from the list, while others have entered the list for the first time.

Canada was not on the list in 1900, but had a 2% share in 2000.

Other countries during the 1900s managed to maintain 7%, while in 2000 the “new markets” had 6%.

financial markets analysis

Source Investopedia – ” Triumph of the optimists

The commercial sectors underwent substantial changes between 1900 and 2000. Very strong sectors in 1900, such as railways, lost a substantial market share a century later. Railways went from 62.8% in 1900 to 0.2% in 2000. For example, iron, coal and steel went from 5.2% to 0.3%.

Other industries have grown, such as banks and finance, and retailers. Some important sectors in 2000 had no market share in 1900. Information technology increased from 0 to 23.1% in 2000. The pharmaceutical, insurance and diversified sectors also recorded strong share growth.

Of course, the trends of the last century do not necessarily have to be the trends of this century. Fortunately, traders don’t need to know what the future will look like in 100 years. They can choose to trade shorter periods of time, such as a daily, weekly or monthly transaction.

Ultimately, it is easier to understand what short-term financial markets could do than long-term, especially if you consider an entire century.

US sector weightings – 1900

Sector

1900

2000

Differenz

Railways

62.8%

0.2%

-62.6%

Banks and Finance

6.7%

12.9%

6.2%

Mining industry

0.0%

0.0%

0.0%

Textile industry

0.7%

0.2%

-0.5%

Iron, Coal, Steel

5.2%

0.3%

-4.9%

Beer and spirits

0.3%

0.4%

0.1%

Services

4.8%

3.8%

-1.0%

Telegraph and telephone

3.9%

5.6%

1.7%

Insurance

0.0%

4.9%

4.9%

Other transports

3.7%

0.5%

-3.2%

Chemical products

0.5%

1.2%

0.7%

Food production

2.5%

1.2%

-1.3%

Minoristi

0.1%

5.6%

5.5%

Tobacco

4.0%

0.8%

-3.2%

Small sectors in 1900

4.8%

62.4%

57.6%

Total

100.0%

100.0%

Sectors

2000

1900

Diferencia

Technology and information

23.1%

0.0%

23.1%

Banks and Finance

12.9%

6.7%

6.2%

Pharmaceutical products

11.2%

0.0%

6.2%

Telecommunications

5.6%

3.9%

1.7%

Minoristi

5.6%

0.1%

5.5%

Oil and gas

5.2%

0.0%

5.2%

Diversified industrialist

5.1%

0.0%

5.1%

Insurance

4.9%

0.0%

4.9%

Services

3.8%

4.8%

-1.0%

Media and Photography

2.5%

0.0%

2.5%

Beer and Spirits

0.4%

0.3%

0.1%

Mining industry

0.0%

0.0%

0.0%

Small sectors in 2000

19.7%

84.2%

-64.5%

Total

100.0%

100.0%

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