Identifying Stock Trends

Before we delve into identifying stock trends let's first define what a trend is. According to Merriam-Webster a trend is, "a prevailing tendency or inclination" or "a line of general direction or movement". The word "trend" is also used as a verb and means, "to expand in a general direction". The use of the word trend with regard to the stock market would then mean that a stock that is trending is a stock that is moving in a general direction.

Stocks only move in three different ways, they move up, they move down, or they move sideways. Stock trends are typically spoken of in terms of either a bullish trend which means the stock price is increasing or a bearish trend which means the stock price is decreasing. If a stock's price is basically going neither up nor down, but moving sideways it may not be viewed by some to be in a trend. Technically, such as stock is in a sideways trend. The sideways trend is also commonly referred to as a "period of consolidation".

There are any number of ways to identify stock trends. One of the simplest ways to do this is to look at a stock chart. Stock charts are very common and can be found all over the Internet at such places as Yahoo finance or Google finance. If you're looking at a stock chart and the most recent price is higher than the previous prices the stock can be said to be in an uptrend. Conversely, if you're looking at a stock chart and the most recent prices are lower than the previous prices on the chart then the stock is said to be in a downtrend.

We have just seen how easy it is to just look at chart and identify stock trends. There is an important question that is on the mind of everyone looking to identify a trend. That question is, "does this trend have the strength to continue?" You see, once you identify a trend it simply isn't enough to know which direction the market has been going, but which direction the market is most likely to go from here. This is why it is imperative to determine the strength of any trend. The reason for this is ideally we would get in on a trend that has good momentum … the type of momentum that could carry the stock price in a direction that will make us an excellent profit.

There is a number of ways to measure a trend's strength or weakness. Many analysts rely on the trading volume as an indicator that the strength of the trend is either increasing, decreasing, or staying relatively the same.

So when you are considering your next stock trade don't only take into consideration what the trend has been, but more importantly, if that trend is likely to continue.

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