It’s important to understand exactly what a ‘trend’ is before we can talk about how to identify stock trends. As a noun, a ‘trend’ is “a prevailing tendency or inclination” or “a line of general direction or movement”. In verb form, ‘to trend’ means “to expand in a general direction”. (Merriam-Webster Dictionary) Thus, when we talk about trends in stocks we are talking about the general direction the stock is moving in. When we say a stock is ‘trending’ we mean it is moving in some general direction.
There are three different ways for stock to move: up, down and sideways. The term ‘bullish’ describes an upward trend, and ‘bearish’ means that the stock price is tending to decrease.
If a stock’s price is moving around but is neither tending to increase or decrease overall, it is considered to be in a ‘sideways’ trend. This kind of trending is also called ‘consolidation’.
A very simple, visual method of identifying stock trends is to look at stock charts. You can find them on common websites such as Yahoo! Finance of Google Finance, and also at brokerage websites. If the graph of prices for a time period is pointing upward then the stock is in an uptrend: if the line of prices is decreasing then the stock is in a downtrend. If it is moving around but not showing a steady increase or decrease then it is in a sideways trend.
It might be easy to identify a stock’s trend, but it isn’t always as clear to determine whether the trend will continue. People reviewing the trends don’t just need to know the direction the stock has been going, but what direction the market is most likely to go from that point forward.
Determining the strength of the trend is important for one to make good profits. If the person is not able to gauge the strength of the current trend, then he may not be able to make substantial profits if his goal is make profits by selling the stock. If the particular stock’s trend strength is not known to the investor, then the investor may sell the stock after one or two days of increase, losing out on the continuous future increase.
Trading Volume on that particular stock in the stock market can be considered as an indicator of the trend strength
A smart investor, therefore, doesn’t simply look at a chart and assume that the trend is going to continue-he or she looks at other factors to determine what the shape of the chart will be in the future.
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