Market Trends | Trend is your Friend

We might have heard of the now-ubiquitous phrases associated with capital markets ‘Trend is your friend’, ‘follow the trend’ and ‘don’t fight the market, just flow with it, are all indicative of the same sentiment.

Market trends echo the cumulative buying/selling behavior of traders and investors. They show what the majority is thinking and are wise to follow the trend i.e. direction of the market or stay out of it altogether, as they are too big to be conquered alone.

It must be noted that broadly the stock markets may be bullish or bearish for a period of time, and we must use trends in relation to the investments we are interested in.

Types of the market trends

Upward Trend: When the price of a particular stock is moving higher or is bullish, then the said stock is in an upward trend.

Downward Trend: When the price of a particular stock is moving lower or is bearish, then the said stock is in a downward trend.

Sideways Trend:  This type of trend means the stock has shown little to no movement in terms of price.

Salient differences in Upward and Downward Trends

Identifying Trends

For investors, identifying trends early on or just knowing the trends can be a good investment base, here are some ways,

Historical Charts: This is the best way to spot trends for a stock, its historical price pattern vis-à-vis its current situation.

All-time highs/lows:  Spotting a stock’s all-time highs and lows can give a good indicator as to the worth and resilience of the stock.

Trend Indicators: Use popular indicators like moving averages and Bollinger Bands to know the trend.

Events & News: These can certainly have an impact on stocks. We saw first-hand how stock markets across the globe tanked due to the pandemic. Good news or policy changes can also lead to positive upward movement.

Earnings Reports: We see positive or negative trends for a stock when the company reveals its quarterly earnings.

Management Shuffle: Change in a company’s leadership can also show up in the stock’s trend.

So, utilize the ‘’Trend is your friend’ theory to make learned investments in the stock markets.