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how to identify trend in stock market

Learn how to identify trend in stock market in details. A trend is the direction of a market or an asset's price. The trends are identified by trend lines that highlight the price which makes higher swing high and higher swing low for an uptrend. Also, swing lows and lower swing highs for a downtrend. Traders that trade in the same direction as contrarians seek to identify the reversal against the trend. The uptrends and downtrends occur in all markets as stock, bonds, and futures. Trends will occur in data as monthly economic data rises from month to month. The trend is the general direction of the price of a market and an asset.

How Trends Work : Traders will identify the trends using various forms of technical analysis, including trend lines, price action, and technical indicators. The uptrend is marked by overall increases in price. The recent swing low should be above prior swing lows and goes for swing highs. So once the structure starts to breakdown uptrend could lose steam into a downtrend. Trends can be used by investors focused on fundamental analysis. It forms of analysis looks at changes in revenue, earnings, and business.

Identify the Trends

The trend is a general direction toward the financial market. The best way to identify the trends is by using trend lines that connect a series of highs/lows.
Uptrend : If you can connect a series of chart low points sloping upward then you have an uptrend. The uptrend is characterized by higher highs and higher lows.
Downtrend :If you can connect a series of chart high points sloping downward you have a downtrend. The downtrend is always characterized by a lower high and lower low.
Sideways trend:-When the stock trades are in a range called a sideways trend. In this trend, the price makes the higher top and lower bottom /lower top and higher bottom formation. It is difficult for traders to trade in the trend. The accumulations and distributions happen in this range.

Use

A break of the trend line signals is a trend reversal. So we can say that when an uptrend line is broken the prior uptrend has ended and vice versa. So when a downtrend is broken means that the prior downtrend has ended. Once the price makes a higher low and touches the lower trend line for traders who are buying. The same process will happen in a downtrend. The trend line will estimate the future price and then warn the trend that may reverse.

Duration of a Trendline

A trend varies in length it can be a short, intermediate/ long-term trend. They are hard to pinpoint as different traders have a different understanding of the duration of trends.

Trend & Timeframe

Trends are classified in terms of the time frame. So traders consider trends short-term, intermediate-term, and long-term. The long-term will trend as it occurs over a timeframe of more than one year. The intermediate-term trend occurs at one to three months. Then short-term trend occurs at less than one month. It is probable that different trends co-exist in different timeframes. The long term trend could be up while its intermediate trend could be sideway and short term trend could be down. Trend traders will prefer to initiate a trade when the entire three trends are the same.

Conclusion

By using the trend analysis is an important aspect of technical analysis. It is only one of the many tools and techniques available. This trend is important to identify and understand trends to trade. Look for buying opportunities when the long term trend is up, and short selling when the long term trend is a downtrend. Avoid trading in a sideways trend, nevertheless expert use both long and short trade in consolidation on the basis of short term trends.