Only 10% of retail traders make money on the financial markets. Their secret? Before initiating a trade or choosing a stock to invest in, they perform a simple stock trend analysis to determine which direction the stock market will follow.
In this article, we will explain stock trend analysis in simple words, how to use it, and provide some real examples of stock market trend analysis.
Contents:
Interact with the underlined words and green dots to get additional details and explanations.
Additional context for the visuals.
Explanations and definitions of terms.
Stock trend analysis is a part of technical analysis, consisting of analyzing the historical and current trend of a stock or a market to predict its future direction.
Firstly, you need to know that the stock market can be in three different trends:
Then those trends are divided into three types:
The bullish trend is an oblique support line connecting at least two higher and higher lows.
A bearish trend can form an oblique resistance line touching at least two lower highs.
A range is when prices move without a clear direction and stagnate over a while.
To become a successful and profitable trader, you need to follow these simple steps to perform a stock market trend analysis, and you will see better results:
You will have a clear picture of the level of prices where the share might go. Stocks follow the same patterns historically; generally, they will always go up for the long term with some period of correction or crisis.
When we are in a bull market (upward long-term trend), the prices go up for an extended period. However, when we are in a bear market (downward long-term trend), they continue to fall for a while.
Remember that you can detect a trend reversal or a continuation using stock trend analysis and some technical indicators.
Moving Average: It is a crucial financial indicator widely used by investors. It measures the average value of a share price on the stock market over a given period.
Support and Resistance: Support is a price level where buyers are more potent than sellers. Resistance is a price level where sellers are more substantial than buyers.
Ichimoku Cloud: Ichimoku allows its users to understand trends' sentiment, momentum, and strength immediately. Thanks to its moving averages and its dynamic cloud it can detect buy and sell signals and obtain support and resistance levels.
When performing a stock trend analysis, you can use those indicators to confirm your assessment.
Five things you need to know about stock trend indicators:
To give you a taste of how stock trend analysis works, we did a live study on the prices of Amazon and Google stocks.
As we see on the graph below, Amazon's stock price (AMZN) was on a short-term bullish trend, but currently, it is in a range between the support at 102.04 and the resistance at 106.67.
Any break of those levels will indicate a new short-term trend for Amazon stock price.
For Alphabet (GOOGLE) stock price analysis, we can see that we are on a bullish trend, as long as the short-term bullish trend line holds (green line), the stock price will continue climbing.
To perform a better stock trend analysis, we need to analyze the tech sector and the US market to see the trend.
Well, yes, professional and successful traders use it. It is simple and gives the best probability of a winning trade.
As a beginner, you might want to test your analysis before starting with real money.
Open a demo account with Olymp trade as it has all the features and tools needed to perform the best stock market trend analysis.
When you feel that you better understand the stock market trend analysis, you can open a real trading account here and start your journey to become a profitable trader.
Trade NowRisk warning: The contents of this article do not constitute investment advice, and you bear sole responsibility for your trading activity and/or trading results.