How to Spot Market Trends
The three types of trends that we regularly observe in our study of technical analysis are short-, intermediate-, and long-term trends. One adage that has emerged from studying both primary and secular trends is “A trend is your friend.”
Some individuals use averages to look for trends. Given that market psychology truly affects market behaviour, we may accept that psychology initiates and terminates the trends we’ll be examining today.
Any technical analysis student should start by learning to recognise the trend. Once they have invested in an upswing, most investors will remain there and look for weaknesses on the ascent, which is the signal required to exit and pocket the profit.
According to history, the principal markets. Also known as the bull market and the bear market—have a typical lifespan of one to three years.
A secular trend, which can continue for one to three decades, encompasses several fundamental trends and is, for the most part, simple to identify due to the length of time. The price-action chart appears to be nothing more than a collection of straight lines flowing gently up or down over about 25 years.
Take a moment to study the S&P 500 chart that remains shown below. The graph illustrates the development of the markets between the 1980s and the mid-2000s, highlighting the market’s growth before the turn of the century.
All primary trends contain intermediate trends, which keep business journalists and market analysts on the prowl for explanations as to why a subject or a market might abruptly pivot and go in the opposite direction from the day before or the week before. The intermediate trends remain composed of sudden rallies and directional shifts, typically the outcome of some economic or political activity and the subsequent reaction.
In bull markets, the rallies tend to be robust, while the reactions are typically moderate. The opposing viewpoint demonstrates the strength of bear market reactions and the briefness of demonstrations. In hindsight, we can see that there will be at least three intermediate cycles in each bull and bear market. The length of each medium cycle might range from two weeks to six to eight weeks.
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The Bottom Line Markets are composed of various trends. Your ability to identify these trends will significantly impact whether or not your long- and short-term investing is successful.
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