4 trends to watch for in the stock market
While you cannot entirely predict a stock's outcome, you can watch for certain trends. Keeping an eye on these trends can help you choose which stocks to purchase, as well as know when to sell or hold onto a specific stock.
Moving Averages
Stock prices tend to increase and decrease rapidly, making it difficult to know what to expect. Instead of monitoring the highs and lows, pay attention to the average price over time. Keep in mind that averages are categorized by different time periods. The specific time period that you watch will depend on how long you intend to keep a stock.
Additionally, instead of diving into the actual numbers that make up the moving averages, pay attention to the movement's trend. Look for upward or downward trends, and make your buying or selling decisions based on those. To make money from stock trading, research is key. It's important to understand the characteristics of a business while also watching its trend.
Cup Trends
If you evaluate hundreds of stock performance graphs, you will begin to identify similar patterns. Learning what these patterns indicate and what to do with them can help you make informed stock decisions. Cup trends are one of the most common patterns you will see across stocks of all sizes.
A cup-with-handle pattern occurs when a stock has significant success almost immediately but drops down quickly after. Eventually, the stock price goes back up only to reach a minimal decline, also known as the cup's handle. Many experts say this is the ideal time to purchase a stock. It's also possible to have a cup-without-handle trend. In this case, the goal is to purchase the stock before it reaches its peak. This trend can be more difficult to identify without the defining cup-handle point.
Volume
Some stock traders prefer to make their buying and selling decisions based on volume. Volume is essentially the buying/selling pressure indicator. In most cases, the volume will correlate directly to the stock price. The more volume a stock has, the higher the price will be.
The key here is to identify a difference in volume versus price. If the volume is high but the price does not yet reflect this, then it might be a good time to buy. If the volume is low and the price has not yet dropped, you might consider selling.
Double Bottom
The decrease of a stock's value causes many investors to sell off quickly. The problem with this, however, is that if you sell too quickly, you lose out on the ability to profit once it goes back up. A double bottom stock reflects the letter W. It has reached its low point twice.
Many experts believe this double bottom trend will eventually flip and resemble the letter M. The two downward points will become two upward points and have the potential of significantly increasing your returns.
Success in the stock market requires careful research and trend evaluation. Watching for these stock trends can help you make informed decisions that give you the best chance of increasing your returns.
