Providing investor education, product enhancements and software solutions on how to become a more successful online trader with The Investrio Mentor Center. Understanding the Stock Market The purpose of today's column is to provide you with invaluable insights into the Stock Market. Today’s Topic: Trend Analysis In last weeks article we familiarized ourselves with how to read charts. This will give us the foundation needed to begin analyzing stock’s technically. An important aspect to this is trend analysis. One thing that is certain about the Stock Market is that it is volatile and unpredictable. Frequently, we feel that our stock is in a perfect position and we buy, only to discover that it not only didnt follow the exact plan we had in mind…but instead went the other way. Ouch! When this occurs, we stare at the computer screen and wonder, "Where did I go wrong?" This is always extremely frustrating. Please understand that every investor has been in this position at one time or another. So what did go wrong? Well, of course every scenario is different and every circumstance changes, but one thing that many investors forget to analyze is the trend. Today we will begin to learn how to analyze this. Determining the Trends of the Stock Market In performing Fundamental Analysis, remember D.A.R.N. (Direction, Analysis, Reports and News). In our Investrio workbooks and videos, we discuss market direction and trend analysis and give it a ranking. A ranking of 1 would be an indication of a strong uptrend. A ranking of 5 would be consistent with a downtrend. These rankings are covered in our educational materials and can be applied to the stock charts discussed in last weeks article. Remember, the Trend is our best friend, so find a market that will befriend you. Please keep in mind that a dangerous, common and costly mistake investors make is to fall in love with their stock and completely ignore what the stocks are doing. If you are looking to make money as your stock is heading up, make sure you find a stock chart that has a ranking of a 1 or 2. This is an extremely important step in determining exactly where you want to invest. So take a look at each stock chart, draw your trend lines and find one that is either in an uptrend (if you plan on making money as the market increases) or in a downtrend (if you plan on making money as the market falls). If you are trying to determine an uptrend, this is accomplished by setting your line at the base of each day’s movements (see the trend chart below). A line on top can also be drawn to give you an idea of the Trend channel. To determine if a stock is in a downtrend, draw a line on the top of each day’s movements. Again, a baseline can be drawn to indicate the Trend channel. This can give you an indication as to where the stock is headed. Additional lines can help you determine where support or resistance show up. These are the parallel lines in the Trend chart example. These give you an idea of when the market is turning around. We will talk about this technical indicator next week, but be aware that there are areas where your stock will have difficulties passing through. These areas are referred to as areas of resistance. Resistance is typically found at levels of previous market highs. These are psychological barriers, since market observers know that these levels are where the trend reversed in the past. The investor needs to beware, as many traders are fearing or expecting that the index will fail to break the resistance. If the index successfully breaks though the resistance, that level often becomes a new level of support. Trend line example Using trend lines and determining the direction of a stock are crucial to our success. These insights and techniques strengthen our positions, minimize our risk and allow us to tap into the movement of the stock market. Remember our words of wisdom. No one cares about your money as much as you do. Use our software, training & education to take back control of your finances. Don't leave your family's future in someone else's hands. Thank you again, for the opportunity to share our knowledge and experience with you. For all the latest information, news & updates please visit us again online. “More Millionaires have been created from the stock market than any other source” --Bloomberg Magazine Copyright © 2000-2003 Wall Street Mentors Inc. All Rights Reserved. Member Access |
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