Stock Trading - Understanding Stock Market Trends
When stock trading it is wise to trade with the trend. Let the trend be your friend is a quote that is often heard.As a small investor you cannot fight the billions available daily in the stock market, so you need to identify the trend and go with it.
But how do you decide if a trend is continuing or coming to the bend at the end?
There are four rules, which will help you determine whether a stock trend is valid:
A trend needs 3 or more data points i.e. the chart needs to touch the trend line at least 3 times - two is not enough !
Look at the gradient/slope – The gradient needs to be steep but not too steep, if it is too steep there is a greater likelihood it will correct itself.
The duration of the trend is important - monthly stock charts are more significant than weekly charts which are more significant than daily charts.
The longer a trend is in place, the greater its significance and the more difficult it is to buck the trend.
Stock market trends are one of the most powerful tools available in technical analysis and need to be studied carefully if you are interested in learning about stock trading.
