102-24 Stock Market Trend: Understand Stock Trends Like a Pro Analyst!

Understanding stock trends is what separates amateur investors from professional market analysts. A stock market trend is a mix of price direction and time. Combining time and direction enables you to correctly analyze a stock price trend.

This lesson will help you understand stock market trends like a professional and enable you to make calculated investing decisions.

Course 102 - Stock Market Investing
Stock Market Trend: Understand Stock Trends Like a Pro Analyst!

Stock Market Trend: Direction

The first component in analyzing a stock market trend is understanding the stock’s or index’s direction. There are only three directions a stock price can travel.

1. Stock Market Uptrend

A stock market uptrend is when the prices of stocks are consistently going up. This usually indicates that the economy is doing well and that investors are confident in the future.

An uptrend is defined by the stock price making higher highs and higher lows.

An Uptrend is Higher Highs & Higher Lows in the Stock Price
An Uptrend is Higher Highs & Higher Lows in the Stock Price: Apple Chart 2021 to 2022

2. Stock Market Downtrend

A downtrend is when a stock or index continues to make lower highs and lower lows. A downtrend in the stock market refers to a general decline in stock prices over a period of time. This could be due to several factors, such as weakening economic conditions, uncertainty about the future, or negative sentiment towards the market.

A Downtrend is Lower Highs & Lower Lows in the Stock Price
A Downtrend is Lower Highs & Lower Lows in the Stock Price: Netflix Chart 2022

3. A Consolidation or Sideways Trend in Stocks

A sideways trend or price consolidation is when a stock or index finds equilibrium and investors feel the price is at fair value. This consolidation is seen by observing that the price is moving sideways.

A Consolidation or Sideways Trend in Stocks
A Consolidation or Sideways Trend in Stocks: NVidia Chart

Now that you know there are three trend directions, we look at the three trend timeframes.

Stock Market Trend: Time

A stock market trend is partly direction but also the time factor. There are three commonly agreed time frames for a trend, short, medium, and long-term.

Short-term market trend

A short-term stock market trend stretches from days to weeks. Using this reference, we can say that the market is in a short-term uptrend, downtrend, or consolidation.

Short-term Trends - From Days to Weeks
Short-term Trends – From Days to Weeks: NVidia Chart 2021 to 2022

Medium-term market trend

A medium-term stock market trend lasts from weeks to months. Using this time frame, we can say that the market is in a medium-term uptrend, downtrend, or consolidation.

The chart below shows Microsofts three medium-term trends from 2020 to 2021.

Medium-term Market Trends From Weeks to Months
Microsoft (MSFT) – Medium-term Market Trends From Weeks to Months 2020 to 2021

Long-term market trend

A long-term stock market trend lasts from months to years. Using this time frame, we can say that the market is in a long-term uptrend, downtrend, or consolidation.

The chart below shows the NASDAQ 100 10-year long-term uptrend.

Long-term Market Uptrend From Months to Years: Nasdaq 100 Chart
Long-term Market Uptrend From Months to Years: Nasdaq 100 Chart 2012 to 2022

Combining Time & Direction For Accurate Stock Trend Analysis

Combining the timeframe and the trend direction, you can accurately categorize the current and historical stock market trends. Below you can see over the last three years; the S&P 500 index has experienced a short-term downtrend (the Covid Crash), a long-term uptrend (the Covid Recovery), and a medium-term down-trend in 2022.

Combining Time & Direction For Accurate Stock Trend Analysis
Combining Time & Direction For Accurate Stock Trend Analysis: S&P 500 Chart 2019 to 2022

Final Words

So now you know how to categorize what situation the market is in. You can confidently say this is a short-term uptrend, medium-term consolidation, or a long-term bear market down-trend. Not only can you explain it to others, but you can understand it for yourself, which helps you make improved investing decisions.

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Further Reading

Learn Dow Theory.

Dow Theory Explained
Dow Theory Explained

Learn How To Predict Stock Market Crashes!

The Next Stock Market Crash Prediction. How I Predicted the 2022 Market Crash.

Learn how to draw trendlines like a boss

How to Draw Trend Lines on a Stock Chart Like a BOSS

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