Understanding Technical Analysis of Stock Trends for Improved Gains

Understanding Technical Analysis of Stock Trends for Improved Gains Stock market has heard more prayers than temples. With unending fluctuations and unsteady predictions, investors find it difficult to decide in which stocks to invest to make optimal gains. No wonder people pray all the time!!!

However, market researchers took the responsibility on their shoulders to find a comprehensive solution to this burning dilemma. After a few experiments, they came up with the 'follow the market trend' theory. This theory indicates the direction in which the stocks are headed. The prevailing trend in the market can be upwards or downwards. Furthermore, the trend can vary in length; it can range from short-term to the long-term.

With this theory, the market trend analysis gained prominence as the analysts could find a valid trend and make better predictions. Now, one can argue, that what is the point of finding out the trends?

The answer is that if an individual succeeds in finding out a trend then he/she can make a big move and can make huge profits. Also following a trend is a path of least resistance for prices as the trends can continue. Now once the trend is identified, the technical analysis of stock trends occurs. It involves forecasting the future events interpreted on the results of the past events.

Thus, technical analysis gives the investors a more detailed view; however, it does not assure the investors of absolute gains. Investors find it much easier to take decisions once they read the technical analysis. Some researchers also assist in choosing between the uptrend stock to buy and the downtrend stock to sell.

Following are the steps for conducting the technical market trend analysis.

Checking quick results Technical analysis of a stock is done for a month or perhaps for a few minutes, unlike the fundamental analysis. This process is best suited for the myopic investors who frequently trade in stocks than the investors who stay invested in a stock with a long-term perspective.

Spotting the path on charts Technical analysis follows the charts to find out the normal trend or the direction in which the prices of a particular stock is approaching. Trends can be of different types such as, the uptrend, the horizontal trend, and the major trend. Trend lines are also used to interpret the results by connecting the successive highs and successive lows to each other, respectively.

Knowing the concepts of Support and Resistance An investor should be well aware of the terms like “Support” which is the lowest price that a stock can dip to before more buyers come in and drive the price up and “Resistance” refers to the highest price a stock can reach before owners sell their share and cause the price to fall again. Support and resistance levels keep fluctuating and hence are used in creating a trend.