Having a clear investment goal is necessary. It helps choose the right investment avenue and determine an appropriate contribution amount and holding period. If you want to start with the funds you have in hand and wish to reap incredible profits with time, invest in the stock market. Stock investments require careful consideration. The investment returns and risk entirely depend on the choices you make.
Hence, doing thorough homework is necessary. Check the share market today, understand the ongoing market positioning, and make trades accordingly. The most important consideration to make is the present market trend. Let us learn more about the market trends and understand their role in stock investments.
What are market trends?
It is the direction in which the market is moving. It can be upward or downward based on the bullish and bearish market sentiment. The trend never moves in a straight line given the volatile market nature. A reasonable time span should be considered to determine the market trend. The longer the market trend moves in a particular direction the easier it is to identify and act on it. If you are wondering why to consider the market trend, the logic is simple.
If you drive a car on the wrong side of the road, meeting with an accident is inevitable. Similarly, if the market follows a downward trend, and you chip in a significant sum, you could bear a huge loss.
What is trend analysis?
Trend analysis is studying and determining the ongoing market trend. Current price movements are a window to predict future market trends. This analysis helps understand if the ongoing market trend continues and further grows or experiences a downfall. This helps investors to make suitable buying and selling decisions. For instance, today Nifty is doing well. Consider the historic performance of the market index over the years in various situations.
This gives an idea of whether the market index will continue following an upward market trend or not. If it continues showing a successful run, then you should invest in the market index’s stocks.
How to conduct trend analysis?
- Moving average – This strategy reduces the impact of short-term price fluctuations on a stock. A suitable time to enter a long position here is when the short-term MA is moving.
- Momentum Indicators – Here, the weakness and strength of a stock price get determined. It gauges the rate at which the stock price increases or decreases. For example, it lets you know the exact percentage by which the Reliance share price has increased.
- Trendlines and chart patterns – They are the sequence of lines and curves marked on a stock price chart. It identifies price patterns, helping you make informed buying and selling decisions.