Just What Is Meant by “Identify Market Trends?”
If any given day trader or investor could accurately predict the direction individual stocks or market segments would take over even a short period of time, the potential for gains would be significant indeed. Unfortunately, the natural volatility of markets combined with myriad variables that can influence the prices of stocks or supply and demand for commodities makes such accuracy unlikely, if not totally impossible. This being the natural environment for investors, it becomes imperative to utilize every advantage and tool available to make such predictions reliable and consistent in order to maximize gains and minimize risk.
Identifying trends can reveal the right time to execute buy orders in financial vehicles and just as importantly, this knowledge can trigger the right time to exit an investment or to avoid a purchase that had previously appeared attractive. Trends may be either static, upward moves, or declines. If a day trader is confident that a positive trend is taking place in particular biotech stocks or an individual precious metal such as gold or silver, a buy order can be placed with their online broker and then monitored closely for the anticipated trend to increase the value to a predetermined exit price. This is where the adrenaline begins to flow for traders; while tracking investments and exiting at precisely the right time – or at least while in positive territory.
Conversely, buying an asset then detecting a downward trend signals the trader to reverse direction and exit the investment quickly to minimize losses.
How Do Traders Identify Trends?
There are many tools available to investors and day traders that contribute to success in identifying market trends:
News – often, current and evolving global news events will significantly impact markets. Political unrest in countries that supply essential commodities such as oil or food products like coffee or wheat can drastically impact supply and with demand being relatively equal, prices can skyrocket. Getting into those markets at the right time can produce considerable profits.
Long-term trends are not the primary concern of the typical day trader who focuses on turning investments quickly – usually at least on the same day, and often within minutes or hours in a single trade session. There are a great number of indexes available for specific markets and also indexes that focus on overall performance or market volatility (VIX index). Monitoring indexes related to your chosen strategy can provide initial visibility to trends. There are a number of indicators commonly put to use by traders to identify trend movement, as well.
Charting – one of the simplest and most straight-forward methods for visualizing trends is a simple chart of an individual stock over time. This demonstrates clearly whether the stock is on an upward trend or a decline. Here again, past performance is not a guarantee of future results.
Corrections – Trend lines for any given investment can change on a moment’s notice and may or may not indicate a reversal of the trend. Day traders in particular need to take close notice of such corrections to determine if they believe there is reason to react or hold their position.
Online Brokers Help Traders Identify Market Trends
Online brokers may provide clients with tools that provide insight into market trends:
- Graphing and charting tools – simplified visualization of trends in markets and individual stocks
- News feeds – keeping customers up-to-date on evolving events, locally and globally
- Stock information in the form of stock tickers, watch lists, and alerts
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Disclaimer: SureTrader Blog is not intended for U.S. persons. Stock information is not to be viewed as buy or sell recommendations.