Importance of Identifying Market Trends

Do you know the difference between a bear and bull market? Before investing in a new stock it is imperative that you understand the differences between these two market trends, but that is just the beginning. Knowing how to read stock charts is crucial because they will show you when profits reach their peak and ultimately, when you should sell.

Determining where the market is, and where a specific stock is, isn’t always easy, which is why people make their living attempting to predict something that is rather unpredictable, like the stock market. Luckily there are some tricks to helping see what you need to be looking out for to help you make the smartest investment choices.

Bears and Bulls

The first thing you need to understand is, for the most part, you want to invest in stocks during a bear market. A bear market is when stocks are falling and selling is the focus. If you get in at one of these points, ideally you will want to ride that investment until the market turns bullish; which is when the market is trending upward. Spotting trends and taking advantage of them is what is going to separate you from the pack and bring you higher returns. If you wait too long you could miss opportunities.

Market Trends

There are actually three kinds of market trends that you need to watch out for. The first is an uptrend. This is when the stocks peaks, and even troughs, continue to move in an upward direction. The second is a downtrend. This is when the stock’s peaks are continually moving in a downward direction. Finally there is a sideways or horizontal trend, in which there is little movement up or down.

Trend Length

On top of the direction of a market trend you also need to look at the length of that trend. A long-term trend can be a trend that has lasted one year or up to five years. Obviously the longer the trend the more likely that trend will continue. An intermediate trend is a marketing direction that has lasted for several months; these trends are less stable and less secure. A short term trend is a market movement that has only happened over a month or less, obviously these are harder to trust.

When you can look at the trend over a specific time frame you will get a clear idea of what that stock is doing and where it is likely to be headed. It’s also important to remember that everything happens in cycles. The goal is to get in when the getting is good and miss out on any serious downturns in the cycle. This isn’t always easy to do or predict. Even if a stock has had a long-term uptrend, know that at some point that is going to change. There are no guarantees.

Losing and Changing

Another important thing to remember when looking at the trend is that 90 percent of traders lose. This is a hard fact to swallow, but in order to win, you have to lose. Losing not only helps you to become a better trader, but it offers you lessons and skills that you would have never earned had you always been on the upside of the trading game.

Adaption is the key. In order to stay up with the trends you have to be willing to make changes, mistakes, and move in a different direction. Trading is playing a serious game and it’s a game where the rules change and you can’t always tell who the winner is, but if you stick to it and are willing to change as it changes you can win, big time.