One of the best books about trading that I have ever read is Way of the Turtle by Curtis M. Faith. In the book there are a few pages on different types of markets. Mr Faith states in his book that he believes that there are three types of markets, these three types are: fundamentals-driven markets, speculator-driven markets and aggregated derivative markets.
Fundamentals-driven markets are markets where traders speculating are not the main driving force behind the price movement as the price is being mainly driven by larger macroeconomic events and forces. Examples of fundamentals-driven markets are the currency and interest rate markets. Fundamentals-driven markets, Mr Faith says, are the easiest types of markets for trend followers to trade as they produce the cleanest trends.
Speculator-driven markets on the other hand are mainly moved by speculators and are driven by perceptions more than by macroeconomics. These markets are far more difficult to trade successfully using a trend following system. Examples of speculator-driven markets are stocks/shares and various commodity futures such as coffee, gold, silver and crude oil.
Aggregated derivative markets are speculator driven markets where the "speculation is diluted because the traded instruments are derivative of other markets that are themselves aggregations of individual component stocks". An example of this is the e-mini S&P 500 futures contract. The S&P 500 moves up and down but its range is constrained by the underlying S&P 500 index, which is its self just an aggregate of its component stocks. Mr Faith says that these are the hardest of all markets for a medium to long-term trend following system to trade successfully.
My experience suggests to me that Curtis Faith is right. The results of my simulations clearly show that markets like the S&P 500 aren't tradeable with a trend following system, whilst markets like the EUR/USD work very well with almost any medium to long-term trend following system. I have also found that things like support and resistance that are caused by speculators appear frequently and are very effective in markets that are driven primarily by speculation but not in markets that are driven by larger macroeconomic events.
Hope this is of use to someone and I'd strongly recommend anyone who's interested in trading to look out for Curtis Faith's book The way of the Turtle.
