A common way to identify Stock Market trends is by using trendlines that connect a series of highs (uptrend) & lows (downtrend). Wondering how to use trendlines and when you should initiate a buy?
We all know that there is an up-trend, a down trend, a sideways trend. Delving deep into the understanding of it helps decode the market. Before we do that, we must understand the movement of it, the ascents and the descents of it. Which can be done by analysing the trending moves and the pullback points, as the market always moves in wave’ patterns.
What we observe here is that the market never moves straight but always moves zigzag. And the ones who understand this, understand the market better and benefit from it. It is of utmost importance that an investor or a trader understand the trend of the stock market. Let’s try and understand it technically by first understanding uptrends.
Uptrends: An uptrend or a rising trend describes the movement in price of a stock, index or any financial asset when the overall direction is up. Which makes it a Bullish market. And it always follows a zigzag pattern. The graph helps us compare the lows and the higher lows & highs and the higher highs. It is this very formation of higher low and higher highs that is called an uptrending market.
Downtrends: Similarly, the market that continuously forms a structure of lower lows and lower highs is termed as a down trending market. The line on the graph that connects all high points is called the trend line. Trendline shows the movement of prices of stocks over a period of time. In a down trending market, a trendline connecting highs provide resistance. Similarly, in an up-trending market the trendline connecting highs would provide support.
Sideways Trend: A sideways market is called a range-bound market or a choppy market, and sometimes also known as a consolidating market. When a market goes up and down, and repeats, and goes up and down again, forming an almost horizontal line touching the high points or the low points, the market is known as a sideways market. The nature of this horizontal line is such that after the fall of the market, at the support point, the market is going to go up. In other words, at the resistance point there is always a good opportunity to take a short trade. So basically, in a sideways market, one usually buys or sells on the horizontal lines’ resistance points and the support points, while in the up or down trending markets one buys or sells on the trending lines, or the trending movement of the market. If it’s an uptrend, buy on support, and if it’s a downtrend, sell on resistance.
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