Home/Blogs/How to Analyse Stock Market Trends

How to Analyse Stock Market Trends

Market trends are always taken into consideration when trading in stocks. Any seasoned stock trader will tell you that without knowing trends in the market,  traders find themselves lost. Trends allow you to know the direction the market is taking, upward, downward or stable, and also tell you something about potential future directions. Many traders study previous market trends that align with circumstances in a country. For instance, knowing about historical trends of the market during similar times of inflation or economic downturn may help to analyse a stock’s return potential. You may also be able to determine a particular sector to invest in by analysing the markets regularly. 

It is important to grasp the functioning of any markets you trade in. 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 a 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. Maintaining a hold on stocks for a longer period of the trend aids traders in earning good returns, rather than selling stocks as soon as they see an upward trend for a short period. 

Traders use upward and downward movements of the market to decide whether to buy or sell shares. Sometimes, traders may take calls, based on previous similar trends and share market analysis, to hold on to stocks that have done well in the past. The trends in a market convey information about trends in particular company stocks, as well as different sectors in the industry. 

How to analyse the stock market and 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. You can also classify trends as uptrend, downtrend or sideways trend. 

Some information about markets and trends will give you insight into how markets work. In the bull and bear markets, the primary markets, history has proved that trends last for one to three years. If you do a share market study, you will learn that a secular trend can last even for up to a decade or more. This is a very long-term trend. Within any long-term trends, you may have intermediate trends that send business journalists and analysts into a spin. These may be sudden shifts in the current trend that move markets in an opposing direction to that which has been the trend for a while. For instance, after a period of an 8-month downward trend, a market suddenly shows an uptick, but these may be short-lived and are the result of equally spontaneous political or economic actions and reactions.

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. However, as mentioned earlier, you cannot fully depend on a trend in case it suddenly shifts. You may just be selling your profitable stocks short. Reacting to sudden shifts isn’t a good idea, as you might prevent yourself from gaining more substantial returns in the future, had you waited out the trend.

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. 

The idea to make the most of trend analysis in the stock market is to pay attention to the industry the stocks relate to, any geopolitical or other factors that have influenced such a sector’s stocks in the past, and how market sentiment has affected such a stock. Therefore, before you invest in any stocks of a certain company, a stock market study will tell you exactly how to trade with that particular stock. It may also indicate how much of your capital to allocate to the stock.

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.
 

In conclusion, mastering the art of stock market analysis is paramount for any investor seeking success in the dynamic world of trading. Understanding market trends and conducting thorough analysis is not just a choice but a necessity in today's competitive environment.

Market trends serve as a guiding light, illuminating the path for traders to navigate through the ups and downs of the stock market. By studying historical trends and aligning them with prevailing economic conditions, investors can gain valuable insights into potential future directions. Moreover, analyzing market trends enables investors to identify promising sectors and make informed investment decisions.

Trend analysis, a fundamental aspect of stock market study, empowers investors to predict future market movements based on past data. Whether it's short-term, intermediate-term, or long-term trends, understanding the trajectory of market movements is essential for maximising returns and minimizing risks. However, it's important to remember that trends are not static and can change abruptly due to various internal and external factors.

The significance of share market trend analysis lies in its ability to guide investors in capitalizing on market opportunities while mitigating risks. By staying attuned to industry dynamics, geopolitical developments, and market sentiment, investors can make well-informed decisions regarding their investment portfolios. Additionally, adhering to the rules of trend analysis, such as identifying valid trends based on multiple data points, observing trend direction and slope, and assessing the duration of trends, enhances the accuracy of predictions and minimizes the likelihood of false signals.

Ultimately, the key to successful stock market analysis lies in continuous learning, meticulous research, and disciplined execution. Whether you're a novice investor or an experienced trader, honing your analytical skills and staying abreast of market trends are indispensable for achieving long-term financial success. By embracing the power of stock market analysis, investors can navigate the complexities of the market with confidence and competence, paving the way for sustainable growth and prosperity.

 

Trending Blogs: NSE Holidays 2024 | BSE Holidays 2024 | Invest in Small Cap & Mid Cap Mutual Fund & Stocks | Companies affected by Rise in Crude Oil Price | Fall in IT Stocks | Launch of 4 New Indices | Revised Lot Size of Nifty Contracts | Impact of RBI Circular on Currency Trading | RBI’s New Lending Guidelines | Electric Air Taxis in India

 

Financial Calculators: SIP Calculator | SWP Calculator | Compound Interest Calculator | EMI Calculator | FD Calculator | Retirement Calculator | Option Value Calculator | Inflation Calculator | Lumpsum Calculator

 

Popular Stocks: ICICI Bank Share Price | HDFC Bank Share Price | CDSL Share Price | UPL Share Price | TCS Share Price | BHEL Share Price | Trident Share Price | IRFC Share Price | Adani Power Share Price


​​​​​

You may also like…

Be the first to read our new blogs

Intelligent investment insights delivered to your inbox, for Free, daily!

Open Demat Account
I wish to talk in South Indian language
By proceeding you’re agree to our T&C