Stock Market Trends and Signs
In order to become a successful stock market investor you should be able to identify the different signals the market gives you. Therefore, you should train your senses in order to become capable of reading the signs the market gives about its future direction.
The market is characterized by different trends. Some stocks tend to go simultaneously with the movements of the market, whereas other stocks follow their own direction.
Thus, in order to make successful investment decisions you should be become well aware of the different trends of the market and their effect on your future returns.
Two important factors may greatly facilitate reading the future direction of the market. They are:
- Price - identifies the direction of the market
- Volume - identifies whether there is a movement on the market
When you study these factors together you will be able to determine the number of both buyers and sellers that are currently playing on the stock market.
The factors that show price movement are:
- The Dow
- S&P 500
- The NASDAQ
These indicators are used most for the purpose of determining the current trend of the market and whether this trend will continue in the future or go in an opposite direction.
In order to determine the second factor, that is volume, you should check the daily sales volume.
Both the price indicators and the volume indicators can be checked online through the use of many sources.
Up markets are characterized by increased prices and high volume of sales. The increased prices are identified by increased values of one of the mentioned above indexes or more than one of them.
If such conditions are observed, then there may be an increased buying activity of mutual funds and institutional investors.
Down markets are characterized by low prices and high volume of trade execution. If such conditions are observed, then market players are withdrawing their money from the market.
When you study these price and volume indicators, you should be aware that they may be misleading. This is so, since there may be several days during which both high prices and volumes are observed, but still the next time period may be marked by high volume and falling prices. This situation is generally referred to as profit taking.
Another scenario is also possible. For example, a market may experience downs during several consecutive days, while its general trend was up. In such a case, this may mean that the time has come when the market will reverse its direction.
The groups that have the biggest influence on the direction of stock prices are mutual funds and institutional investors, because their main emphasis is on volume. So, an examination of the trading activities of these may determine the future direction of the stock market.
The stock market hides another trap. It may experience a drastic change in prices which is not corresponded to a change in volume. However, the general forces that move the market are supply and demand and thus, an up market is characterized by more buyers than sellers, who are bidding against one another and drive both prices and volume up. Accordingly, a down market is characterized by fewer buyers than sellers, who are competing to win buyers by lowering their prices. Since prices are lower, then volume is higher.
Finally, you should become observant of the market trends by studying the signs it sends to you. In this way you will increase your chances of acting in the appropriate for the market conditions way and as a result increase your profits.
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