How to identify an uptrend and downtrend…!!
An investor who invests in the stock market always looks for a trend. They always look for the mood of the market, whether it’s going upward or downward. The best way is to look for the stock price chart and indices. The stock market, just like the price of the individual stock shows a trend. That’s where technical analysis comes into play as it assumes that “Prices move in trends ‘’. It helps in forming an opinion about market trends. For a naive person, it’s movement may look random, but there may be forming short, mid or long trends.
A market trend is used to describe the movement of the market over time. Generally, a trend can move toward either the upward or downward until something changes and alters the trajectory. Generally, a trend moves up and down, until something happens to change the trajectory. There are three ways the market can move, upward, downward and sideways. Let’s try to understand each of these keywords:
- Upward Trends: When the price of the stock is moving higher or in the upward trajectory, then it is called Upward Trends.
- Downward Trends: When the price of the stock is moving lower, then it is called Downward Trends.
- Sideway Trends: A sideways trend means little price movement or change and doesn’t require any explanation.
Out of these upward and downward trends are most important, let’s look at the difference between upward and downward trend:
- In an uptrend, both the peaks and troughs of a stock chart keep increasing successively. Whereas in the case of downwards a stock keeps falling successively.
- An uptrend is characterized by prices, making higher highs and higher lows. Whereas, a downtrend is characterized by lower price highs and lower price lows.
- An uptrend shows that the market has a positive sentiment. The chance of stock appreciation is quite more in this case. But in a down trend, each little rise in the stock price is used by investors to sell their existing quotas of shares.
- An upward trend will be profitable if an investor is taking longer but the investor will never be profitable if you are a long trend in a downward trend.
One of the questions that come to the investor’s mind is how to identify a trend. Spotting a trend in the very beginning can be rewarding for traders. Let’s look at the various things to take note before identifying any trend.
- Historical charts: The best way to spot an emerging trend is going through the market’s historical price pattern and compare it with current situations.
- Examine all-time high. One of the most important things to be taken into notice is spotting an all-time high.
- Trend Indicators: Even though the present performance doesn’t help much help in future market performance. But it will help us understand the market performance and analyse the price movement. Let’s look at the most popular indicators:
- Moving Averages: It is the most common indicator in technical analysis, which is used to analyze price trends. It provides trend traders with a clear vision of whether to go long or short on a particular stock.
- Bollinger Band: It is an indicator to measure the volatility of the market price. It consists of three bands: lower, middle and higher.
Apart from these things, one should also be aware of certain things which may act as a catalyst in setting up the trend in the short term.
- Major news Event: A news related to any stock, government policy or management changes may cause a change in the persistent trend. A piece of good news can set the momentum in an upward trajectory, while a piece of bad news can set the momentum in a downward trajectory.
- Earning reports: Earning reports can also impact trends. Good earning can set the right momentum for the investor. A bad earning momentum can reverse the momentum trade.
- Change in Management: A change in management does effects on the trend. It can go in either direction whether upwards or downward. For example, a tech company has hired a high-ranking employee of a reputed organization, then it will set the movement in a positive direction.
*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing