How To Analyze The Market To Invest?

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Your investing journey in the stock market begins with this important learning that how the market works. Only with this understanding, you can make smart decisions that result in profits subsequently. You can analyze the market with trend analysis. As an investor, remember a trend is your friend. Let us start with what a trend is.

Trend

A trend is a general direction of the price at which the stocks are moving in the bullish market or bearish market. Trends move upwards or downwards or sideways for a general duration. Longer trend moves become noteworthy and affects your investments.

Trend Analysis

Trend analysis in the stock market is the process of analysing current trends to attempt the prediction of future trends or say, in the hope of getting knowledge about future trends. You can analyse that particular industry will continue to grow just like the present trend or, will the market trend will take a shift. Trend analysis is based on huge data, still, it is near to impossible to predict the trends 100% accurately, but yes you can get an idea to make the right investment decision.

To make an investment in the stock market, you need a demat account and trading account.

What is Demat Account

As you know, you cannot trade in the physical format of financial securities in the stock market, you need a demat account to hold your financial securities in electronic format.

What is Trading Account 

You require a trading account to trade in the stock market. It is a trading platform where you can trade your securities at a stock exchange. To open an online trading account, you need a stockbroker.

Trend Reversals

Trends and trend directions are two different aspects. You may find a trend reversal during analysis. When the direction of financial securities takes a back move i.e. in the opposite direction. It is the trend reversal. Downtrends may get reversed into uptrends or vice versa. Your trading orders should be in the direction of trends to make profits.

Types of Trends

Stock market trends analysis can be secular, intermediate, and short term. Let us discuss each of these:

  • Secular/Structural Trends 

Long-term trends can last for one to three decades and are not easy to predict. To recognize a long-term trend, add moving average to the short-term chart with a higher number of periods. Moving average is a powerful trend-spotting tool but it requires an extensive record of data. These trends are often interrupted by small movements against the trend.

  1. Intermediate Trends

Intermediate trends are the primary trends. Market analysts are more interested to find out why a market suddenly turns it’s direction i.e. opposite to that of last week or yesterday. Sudden turns make up the intermediate trends. It may be due to subsequent reaction for economic or political action. These sudden turns in the bull markets are stronger than bear-market. It is important to know that each market whether it is bull and bear, will have a minimum of three intermediate cycles of six to eight weeks.

  • Short Term Trends 

A short term trend is easy to identify because of the short time frame such as a price movement over a few hours or days. Intraday trading, swing trading and trend following involve predicting the short term trends. Traders can make large profits or meet large losses with short-term trends.

Identifying Trends

There is no specific time frame that makes a movement direction a trend, but yes the movement should be consistent to be a substantial trend. Some investors try to identify trends by averages. Following are the points that can help to identify an accurate trend:

Slope

The slope of a trend will tell you how much the price or metric should move every day. Lines moving upward or downward indicate a trend. If the line is too flat, it is a question on both the validity of the trend and its prediction. Trends can move upwards, downwards, and sideways. On a chart, you can see all three types of trends.

Time period 

Time validates a trend. Generally, monthly time series can replace daily prices, so it carries greater weight. The longer a trend remains in force, the more it is important.

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Hence, profitable investing in the stock market is depending on your analysis capacity. It is a powerful technical tool to give you positive results.