In today’s fast-paced global environment, analysing stock market trends becomes a hard nut to crack for many due to the lack of proper market knowledge. But according to stock market experts, it is not something that can be done without seeking external help. There are primarily two types of market trends – Bull and Bear. Let’s find out more below about how to predict these two trends.
What is a Bearish trend?
A bearish Trend is when the stock markets are going downwards and categorized by the fall in the industry’s stocks or there is an overall reduction in the market indices. The bearish trend is defined by heavy selling pressure applied by the bears.
When there is a fall in the prices of about 20% then it is generally considered a bearish trend.
What is a Bullish Trend?
A bullish Trend in the financial markets can be defined as an upward trend if there is an increase in the industry’s stocks or there is a general increase in the market indices. The bullish trend is branded by heavy buying pressure exercised by the bulls.
When there is an appreciation in the prices of about 20%, it is termed as a bullish trend.
What is stock market prediction?
Stock market prediction refers to determining the future value of company stock or other financial instruments traded on an exchange. The fruitful prediction of a stock’s future price could lead to a noteworthy profit. However, when it comes to examining the stock prices and forecasting future trends, there are primarily across two types of approaches/analysis:
1. Fundamental Analysis is a way of evaluating the inherent value of a stock by considering associated economic and financial factors. Stock market analysts study each & every aspect that can influence the security’s value, from macroeconomic ones such as the state of the economy and industry conditions to microeconomic factors like the efficiency of the company’s management.
2. On the other hand, the technical analysis endeavours to determine price shifts by reading historical data, predominantly price and volume. The basic assumption is that all known fundamentals are divided into price; thus, there is no need to consider it carefully. Technical Analysis helps traders and investors circumnavigate the gap between intrinsic value and market price by using techniques like statistical analysis and behavioral economics.
Now when it comes to predicting bearish or bullish market trends, the below strategies can be used.
1. OHLC Chart
One of the popular tools that the top 10 stock brokers in India use in the technical evaluation of the stock market is OHLC. An OHLC chart is a kind of bar chart that depicts open, high, low, and close prices for each period. OHLC charts are valuable as they reveal the four leading data points over a period as well as the snowballing or lessening momentum. When the open and close are far apart it shows solid momentum, and when they are close together it reveals indecision or poor momentum. The high and low show the complete price band of the period, beneficial in determining volatility.
2. Moving Averages
A Simple Moving Average (SMA) refers to a measurement that determines the arithmetic mean of a specific group of prices over a particular number of days in the past. If you are working with the best stock broker in India, this indicator will primarily be used by him to determine market trends.
Moving averages are generally measured to identify the trend course of stock. An increasing moving average signifies that the security is in an uptrend, whereas a declining moving average indicates that it is in a downtrend.
Put simply, a rising trend is verified with a bullish crossover, which takes place when a short-term moving average goes above a longer-term moving average. Contrariwise, descending momentum is established with a bearish crossover, which happens when a short-term moving average slips below a longer-term moving average.
3. Exponential Moving Averages (EMA)
An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. It reacts more knowingly to latest price variations than a simple moving average (SMA), which applies an equal weight to all explanations in the period.
EMA is found to react faster to price alterations than SMA. The 12- and 26-day exponential moving averages (EMAs) are sometimes the most cited and analyzed short-term averages.
4. Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD) is actually a trend-following momentum pointer that depicts the relationship between two moving averages of a stock’s price. The MACD is measured by subtracting the 26-period EMA from the 12-period EMA.
Signal line crossovers are the most widely preferred MACD signals. The signal line is a 9-day EMA of the MACD Line. Being a moving average of the indicator, it follows the MACD and makes it simpler to locate MACD turns.
A bullish crossover takes place when the MACD goes up and crosses above the signal line.
A bearish crossover is when the MACD slips down and drops below the signal line.
5. Relative Strength Index (RSI)
The Relative Strength Index (RSI) is meant to compare the scale of recent gains to recent losses in an effort to ascertain overbought and oversold conditions of a stock.
The RSI is measured by standardizing the relative strength factor (RS). Relative strength is measured by average gain divided by average loss.
The average gain refers to the sum of the upward price changes over the last X time periods — generally, 14 as recommended by the developer of the pointer — divided by the number of periods to achieve the average.
The average loss is the sum of downward price changes over the same number of periods, divided by that same number of periods.
RSI is expressed as a figure between 0 and 100. An asset around the 70 levels is often considered overbought/bearish, while an asset at or near 30 is often considered oversold/bullish. The RSI measures price change in relation to the latest price highs and lows. MACD and RSI are often used together to provide analysts with a more complete technical overview of a market.
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FAQs
What is a trend?
- A trend is supposed to provide the overall direction of the stock’s prices or the market as a whole.
What are the different types of trends?
- The trends can be categorized into uptrends, downtrends, and sideways which occur in all types of markets such as stocks, bonds, and futures.
What is a candlestick chart?
- Candlestick chart patterns help the market analysists in determining whether the ongoing trend is an uptrend, downtrend, or sideways. Candlesticks can be divided into bullish or bearish candlesticks.
What are technical indicators?
- Technical indicators refer to technical tools that assist in analyzing the continuing trend and whether the existing trend is going to reverse or not.
What is a Bearish trend?
- Bearish Trend can be defined as a downward trend if there is fall in the industry’s stocks or there is overall fall in the market indices.
What is a Bullish trend?
- Bullish Trend in the financial markets can be defined as an uptrend if there is an increase in the industry’s stocks or there is a general rise in the market indices.
