Studying Stock Market Trends
Tuesday, November 9, 2010 | Labels: stock trading | |
There are people that make careers out of predicting where the stock market will be in the next day, month or even year. If you can get good at predicting about where the stock market will go you can make a lot of money by investing in the stock market.
Learning to understand the trends of the stock market takes time and expertise. There are some basic concepts about the stock market that will help you as you try to predict what is happening with the stock market.
Learning to identify and interpret the signs that the stock market gives is crucial. You must pay attention to the stock market and invest time in learning about the stock market.
We will talk about bull markets and bear markets. These are terms that have been coined to describe upward and downward trends in the stock market.
If there is increased investor confidence and increased investing in anticipation of future price increase then you have a bull market. A bullish trend will usually start before the economy begins to show the same upward trend.
The opposite is true of a bear market. When there is widespread investor fear or pessimism and the market shows a general decline over a period of time we would classify it as a bear market.
When the investors transition from having an attitude of optimism to pessimism we are usually going to be faced with a bear market. Later when we use these terms you will understand what we are saying.
The majority of stocks move with the trends of the markets. When we are in a bull market or when we are in a bear market we will see that most trends will follow the upward or downward trend.
This proves the point that it is important for us to always know what trends are currently affecting our stock market and what trends will be happening.
Price and volume are the two key points to look at when you are trying to determine where the market is headed. When you put these two key pieces of information together you will get a picture that tells you whether there are more sellers in the market or more buyers in the market.
The volume will tell you whether there is movement in the market and the price will tell you what direction. If you find a trend, you will need to capitalize on the trend.
The three big indicators for this formula are the Dow, the S&P 500 and the Nasdaq. These markets will be your source for price.
They will help you decide whether the market is going to continue its current trend or it if is trying to reverse course. We chose these markets because they are the leading markets in our economy.
The indicator for the volume comes from the daily sales volume. IF the market has a high-volume day and prices are up, you will be looking at mutual funds and institutional investors buying , which is a sign of an up market trend.
But if you see that one day there is a high-volume with lower prices that could mean that there is a downward trend. Usually big players will be backing out of the market at this point.
Remember to use your common sense as you are watching the trends in the market. If you have three or four days of high volume rising prices, it is not unusual to hit a high-volume day where the prices fall off.
If you begin to see the up days too much in a market that has been moving down, you may be noticing a sign that the market is about to reverse course or stall. The same is true of noticing down days in an up market.
A market that is showing sharp price movements in either direction without corresponding volume increases is sending false messages that should be watched carefully. You need to be wary of these changes.
Understanding that you should not try to swim upstream is crucial. The obvious forces of supply and demand will drive the market.
When there are more buyers than there are sellers the market will go up. When there are more sellers than there are buyers the market will go down.
It is when you find a prevailing trend of a different price and volume than the rest of the market that you may know to expect change.
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