If you’re not aware of trends, stepping into the stock market can be risky. But if you are one of the very few who know how to identify and capitalize on trends in the market, you can make money intraday.
Earlier, trading meant buying and selling as per a person’s prediction. But now, it needs a lot more than that. There’s technical analysis and various tools that help us predict the trends.
What is a trend?
The stock moves in a particular direction and the trend helps us to identify the direction to achieve our goals. These trends increase or decrease depending upon the market situation.
A trend does not establish in one day. There has to be a specified duration for a movement to be known as a trend. Every trend becomes more noteworthy with its longevity. To attain profit, analyzing these trends is necessary. 55% of US adults hold money in the stock market, says Forbes report.
Trend analysis helps to predict future trends to avoid loss in the share market. With this, you can predict if a specific sector will grow in the future and is a reliable source to bet on. With the help of this analysis, you can also know if there’s a new trend that is about to start in another market sector.
If you’re a young trader, there are trading styles that can suit you, for example trading Penny Stocks that are under $5 per share. As a beginner, you should start with reading this complete guide for trading penny Stocks.
Penny stocks are pretty cheap. You’ll be able to find the Top Financial Penny Stocks that include Nasdaq Penny Stocks, Pink Penny Stocks, Cannabis Penny Stocks, Electric Vehicle Penny stocks and also Crypto penny stocks.
There are 7 golden rules that will help you predict these stock market trends:
1. Three data points needed
A trend needs at least three contact points to be considered valid. Based on this, you can classify them as short-term, intermediate-term, or long-term trends. To decide which penny stocks to buy, you need to identify these trends on a primary basis.
When you identify these trends and analyze them, you’ll find them moving in three directions- upwards, downwards, and sideways. If you sit to study charts of longer time durations, you’ll be able to notice all three types of trends in the same chart.
3. Watch the slope
The slope in the chart tells you the exact thing. It informs about the price that will move each day. If you’re observing a steep slope, this means the trend is unsustainable and will gradually correct, i.e., there’s a certain trend. If you see a flat line, it questions the prediction and validity of the trends.
4. Perfect timing
The timing is a big aspect while predicting a trend. The time duration enables you to know the validity of a trend. Like, the monthly trend has more weightage than the weekly trend that supersedes the daily trends.
As said before, the importance of a trend is proportional to its longevity. The longer time a trend remains, the more weight it holds.
6. Moving averages
The 200-day moving average is a very popular tool used to predict trends. On a price chart, you plot the 200-day moving average and it will show you the results. Consider it as a buy signal if the price of the stock is above the moving average line. And if the price is below the line, take this as a sell signal. This is also possible through 50-day moving average or 10-day moving average lines.
RSI or Relative Strength Index compares the extent of an asset’s recent gains or losses. Based on this, you can derive if it is oversold or overbought. RSI is measured from 0-100. If RSI is above 70, you should sell the stock as the RSI indicates it is overbought. Similarly, if RSI is below 30, then you should buy the stock as it is oversold.
Over to you…
Learning the stock market and its trends requires large efforts. However, you also need to put in those efforts to earn a large amount of money. Apart from these, you can also talk or read the opinions of stock experts that offer support and resistance to your predictions. However, if you are planning to start with investing in crypto, this can be your kick-start.
Remember, to earn from trading, you need a good volume and volatility. Maintain a stop-loss system for you to avoid incurring heavy losses. Generally, the big traders margin the stop-loss at 1.5-2%.
Keep a constant eye on the changing trends. The market fluctuates every second and to make wise decisions here is the only choice.