Rally definition

What is a rally in trading?

A rally is a period in which the price of an asset sees sustained upward momentum. Typically, a rally will occur after a period in which prices have been flat, trading in a narrow band, or experiencing a decline.

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Stock market rally explained

Rallies on the stock market occur during periods of increased buying which drives the price of a stock upwards. Often, a rally can be self-fulfilling, with traders recognising an upward trend early on and buying into it. As a consequence, this drives the price up further and further until the upward momentum can be identified as a market rally.

How do traders identify a rally?

A trader can identify a rally by using technical indicators such as oscillators, which can help to identify overbought assets – one of the key drivers behind market rallies.

However, depending on the timescale being used by a trader, the length of a rally can be relative. For example, a day trader might experience a rally in the first 30 minutes of a market opening if beneficial market news has broken during the night.

Alternatively, position traders might require a sustained upward movement over a number of days or weeks in order to consider a period of upward movement a rally.

What causes a rally to take place?

Rallies can occur for a number of reasons. For example, before a big or highly-anticipated company announcement – such as the release of a new iPhone from Apple or a new car by Tesla – investors might flock to that company’s stock.

They would do this to benefit from the launch of the new product and the increased revenue that the company will receive from sales. In turn, this will push the price of the stock up as demand begins to outstrip supply.

Equally, longer-term rallies can be caused by larger-scale economic events such as government changes in tax policy, interest rates, regulations and other fiscal policies. Any data which signals positive change will likely cause traders to rally behind those investments which might be affected by any shift from the status quo.

Learn more about what causes share prices to change

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