Can You Figure Out Stock Market Trends?
With the stock market in fully rally mode today (are the bulls starting to get a little too exuberant?), it is interesting to see whether a true stock market trend is forming. Or, what if this is only an anomaly? For me, it doesn’t matter a whole lot; I’m a boring index fund, buy and hold type investor, so these ups and downs that take place over a period of three to five years don’t get me fussed. But there are a lot of other folks out there that like the day trading scene and find it exciting to play the market a little more actively. It’s these folks that want to know whether there is a real uptrend forming.
Figuring out if you’ve got a real stock market trend
If you want to figure out if you have a real stock market trend, there are some things that you should consider. Stock Trading To Go offers 5 things to look for when assessing a stock market trend:
- Check the points of contact along a trend line. Three or more points are needed if you want to consider your trend a, well, actual trend.
- Look at the direction of trends in a longer time frame. Zoom out an look at the chart for a longer period of time. This way you can see different trends, and determine what the overall theme seems to be.
- Consider the slope of trend lines. A steep slope probably indicates that a stock is due for correction — it’s unsustainable. A flat slope could mean that the trend is not terribly predictive. A slope that is more reasonably slanted is more likely to indicate a true stock market trend.
- Time frame. The longer the time frame, the more likely the trend is to be correct. A daily time frame will not give you results that are as accurate as a monthly time frame.
- How long does the trend last? Check to see how long the trend has been heading in a certain direction. The longer a trend has been in place, the longer it is likely to last going forward.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
