Rally
Candlefocus EditorRallies are typically comprised of several trading sessions and are considered as a single move if they are sustained with volume and strength. During a rally, it is not uncommon to observe increased volume and volatility as traders who may have been out of the market capitalize on the opportunity to enter or exit their positions, driving prices further during the run.
Rallies are often caused by positive fundamentals or news. Some of the most common positive fundamentals that can serve as catalysts for a rally include strong economic data, positive corporate earnings results, and policy changes that are seen as beneficial for the long-term growth of an economy. On the other hand, negative fundamentals can act as catalysts for bear markets and broad selloffs in asset classes.
Although a rally can occur in any asset class, they are most commonly seen in equity markets where they typically provide the backdrop to many of the world’s most profitable trading strategies. During a rally, traders will typically attempt to capitalize on the price momentum in order to generate high potential returns.
Rallies can last anywhere from a few days to several months depending on the underlying cause of the price increase. Generally, the longer the price increase continues, the more likely it is that the market will begin to take notice and turn the rally into a longer-term trend.
Though rallies are not always predictable, they can be identified and may be used as indicators of potential profits. Timing, normally, is key in reaping the rewards of a rally. Traders should be aware of the fundamentals, economic data, and news flow in order to identify potential assets where a rally is likely to take place. As such, it is important for traders to stay abreast of market news and events in order to capitalize on the potential profits a rally can offer.