How to Identify Market Trends?
Markets have established their trends very well in a world full of trends. A trend is the movement or state of an asset’s price. The study of trends is mainly conducted by traders for technical analysis. Any market, stock, crypto or futures is always in one of its two trends, either an uptrend or downtrend.
Any asset is said to be in an uptrend when the overall price is increasing, followed by higher swing highs and higher swing lows. This means the current lows in the uptrend are higher than previous lows, and the overall price is rising, as seen in image (A).
In contrast to the uptrend, the downtrend consists of lower-swing highs and lower-swing lows. This means the current lows are lower than previous lows and recent highs are more down than earlier highs, as shown in image (B). The market is considered in a downtrend when the overall price of an asset is declining.
The analysis of an uptrend and a downtrend varies based on the time duration. Traders use these trend analysis to book their profits at the right time.
When market trends last for about one to three years, it is either called a Bull market in case of an uptrend or a bear market in case of a downtrend.
Secular trend describes the time series that last for decades. It is much easier to read the trendline in a secular trend because, over the years, the graph will appear to be a straight line moving either in an upward or downward direction.
Since the duration of an intermediate trend is short, about 3-6 weeks, the graph doesn’t appear to be straight. There are various short-term variations in the prices. The intermediate trend is a part of primary markets; the decline in the bull trend will be an intermediate downtrend, and an increase in a bear trend will be an intermediate uptrend.
The markets are made up of various trends, which can help you make wise short-term and long-term investment decisions. So, before investing, ensure to analyze the prevailing trend.