If someone asked you today, “Is the stock market in an uptrend, downtrend or a lateral consolidation”, what would you answer? Knowing the answer to this key question is important for the stock market or even an individual stock. Why? If you buy a stock (go long) in an uptrend you are more likely to make money on it.
There is a simple way to see for yourself if the market is heading upwards or downwards.
First let’s examine what types of trend exist:
Types of stock price trend:
- Uptrend: The stock or index is moving up, making new highs or higher highs
- Downtrend: The stock or index is moving downwards making lower lows
- Sideways consolidation: neither making significant new highs nor new lows
There are also time-frames to consider in evaluating a trend, for this we will refer to Charles Dow’s classification.
Types of stock trend time-frames:
- Short Term: Days to weeks
- Medium Term: Weeks to months
- Long Term: Months to years
By combining the above terms, you could be specific about the market trend. For example you could say the market is in a short term up-trend, but a long term down-trend. But isn’t that contradictory, the market being in both an uptrend and a down trend at the same time?
Not really it makes perfect sense.
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