Watching Trends On The Stock Markets
Tuesday March 3, 2009
Stock markets move in trends over time, and being able to read and predict trends is essential to maximising profit on your investments. It's easier said than done, but at least understanding how the different market trends operate is a good start to speculating on the direction of the stock markets. The terms most commonly used to describe market trends are bull and bear.
Bull Market
A bull market can generally be defined as a market moving in an upward trend. That is when stocks and shares are making positive gains, and investments are becoming ever-more valuable. To capitalise on a bull market, you must buy stocks, decide when they have reached their maximum potential value and then sell them. If sold too early, you will not reap the maximum gains on the stocks, and if held too long, the stocks will eventually go into a decline and begin to decrease in value.
Bear Market
A bear market follows the trend of a downward swipe where the market is consistently losing value. Bear markets tend to move slowly, and that means low stock prices can stick around or continue falling for some time. The trick to operating in a bear market is again understanding when to sell your stocks, or even simply to hold onto stocks until the market recovers.
There are also short selling tactics, but you must check with your stock exchange about the rules relating to this. For experienced traders, you may be able to use options, futures or numerous other complex tools to 'go short' on a position and profit on a declining market. If you think the market has reached rock bottom, then it may be a good time to buy stocks, as an uptrend will start making you money again.
It's important to note there have been various degrees of market trends such as these ones, and both bull and bear markets can hang around for years. A primary market trend lasts a year or more, and secondary trends describe the short-term state of stock markets. In most cases, this is measured in weeks to a few months.
A decline in a primarily bull market is called a market correction, and a bear market temporarily on the rise is called a bear market rally. Unfortunately, there's no certain way to pinpoint the length of a trend until after it has happened.
A secular market trend refers to a much longer trend of five to twenty-five years. In recent times, many of the world's stock markets have been described as secular bull markets since the '80s. Secular bear markets have historically been quite devastating, and one of the more famous examples includes the secular bear market of the 1930s that coincided with the Great Depression.
A good amount of academic effort is put into the technical reasons that cause stock markets to follow trends, and there is no collective agreement yet to why markets move the way they do. Some theories state that markets move with regularity and persistence while others claim that market trends are random, such as described in the Random Walk Model.
Despite the reasons why stock markets move the way they do, it's imperative to know how to capitalise on the current state of the market. Watch the stock market news, stock market reports and gain as many stock market tips from the experts as possible. The informed investor has the best chance of coming out ahead no matter the direction of the trends on world's stock markets.
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