How to analyze Stock Market Trends - 5 Rules for predicting Stock Market Trends| MotilalOswal
How to analyze Stock Market Trends - 5 Rules for predicting Stock Market Trends| MotilalOswal

How to Analyse Stock Market Trends

How will you trade without understanding how the market functions? The beginning of your trade journey begins with this important lesson. Only when you learn share market analysis or equity market analysis will you be making smart decisions and subsequently, profits.

What is a Trend?
A trend is the general direction at which the stock is moving. Based on whether the market is bullish or bearish, the trends move upwards or downwards. There is specified duration for a movement to be considered a trend, however, the longer the trend moves (either upward or downward), the more noteworthy the trend becomes.

What is Trend Analysis?
Share Market Trend or equity market trend analysis is the process of analysing current trends in order to predict the future trends. Using share market trend analysis, you can attempt to predict if a particular market sector growing now would continue to grow in the future. Or, will a market trend in a particular sector start a trend in another. This process of share market trend analysis involves a lot of data, but nobody can predict the trends accurately with 100% guarantee.

Share market trend analysis is an aspect of technical analysis that tries to predict the future movement of a stock based on past data. A share market trend is based on the concept that the past movements are windows to the future trends. There are three main types of share market trends: short-term, intermediate-term and long-term.

Also Read: Choosing the Best Stock Market Analyst

Share Market Trend Analysis
Share Market Trend Analysis tries to predict trends in the market. If the predicted trend is bull market run, you can ride that until there is a trend reversal. As an investor, you can make profits if you move with the trends and not against it.

Why is share market trend analysis important for you?

There is a lot of data involved in share market trend analysis and in order to start analysing, we must first identify which sector we must pick. The focus can either be on the type of industry like the pharmaceutical sector or in the kind of investments, like the bond market. Only when you select your sector, can you start analysing it. The stock market trend analysis includes both external and internal forces that affect it. Changes in a similar industry or the introduction of a new governmental regulation qualify as forces impacting the market. Analysts then take this data and attempt to predict the direction the market will take, moving forward.
As an investor, you must understand the sense behind the stock market trading trend. As you wouldn’t drive your car in the wrong side of a one-way street, similarly, it’s advisable not to trade against the trends in a market.

Also Read: Why motilal oswal can provide you the best stock analysis

How to understand if a stock market trend is valid?

Since there isn’t a time frame for a movement to be considered a trend, the series of price movements need to be legitimate for it to be substantial trend and not just an anomaly. And as an investor, you should be able to identify it. So, here’s a list of 5 rules you can use for most accurate stock market trend analysis.

Three data points needed – Only when we have three or more points of contact is a trend considered valid.

Direction – Trends can move in three directions—up, down, and sideways. If you study prices over a long period of time, you will be able to see all three types of trends on the same chart.

Watch the slope – The slope of a trend indicates how much the price should move each day. Steep lines, moving either upward or downward, indicate a certain trend. However, if the line is too flat, it calls into question both the validity of the trend and its predictive powers.

Time the trend – The amount of time determines the validity of a trend. Generally, monthly time series carry greater importance than weekly prices, which supersede daily prices.

Long lasting – The longer a trend remains in force, the greater the weight it carries.

Stock market analysis or equity is a powerful technical tool that will help your analysis and get you positive results if you learn about them and their applications thoroughly.


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