How to Identify Different Types of Stock Market Trends
Published April 27, 2021.
Trends in the stock market are critically important as they provide investors with the best chance of predicting the direction of the market.
However, identifying and analyzing stock market trends can be quite tricky, so in this article, we’re going to explain some techniques involved in achieving this.
Successfully identifying a stock market trend requires utilizing trend analysis. And there are several important data points involved in this process.
Studying stock charts over a period of time will reveal whether the market is trending up, down, or roughly at a level bearing. This is extremely important historical information.
This trend will indicate how much the market prices are moving over a shorter period of time. If the line is too flat, it calls into question the validity of a particular trend, and its predictive powers going forward.
The amount of time associated with a particular pattern determines the validity of this trend. Anything that is occurring over weeks or months naturally has more validity in terms of market direction than a daily trend.
When assessing charts, short, intermediate, and long-term trends are all part of the technical analysis. However, another approach is to look at averages. These are widely available online and can provide a useful insight into the likely direction of the market.
Bull markets and bear markets are seen as primary trends; fundamental indications of whether the market will grow or recede in the foreseeable future. These usually last from 1-3 years in duration and thus are very indicative of longer-term trends.
Ultimately, predicting stock market trends requires an investor to balance these various factors. This can often depend on the type of trading in which they are engaged, with day traders often looking for instant factors that will impact the market over a 24-hour period.