You all must have heard the quotation “ Always trade with the trend ” , well it is really true and it must be implemented by everyone be it any type of trader in the stock market / share market , trading against the market trend is one of the most basic mistakes that new traders make , always buy strength and sell weakness , never buy in bearish market and never sell in bullish market . There are essentially three types of trends in which a stock or market can be at a single point in time , it can be in an uptrend , a downtrend or a sideways trend , below we will take a look what each of these means and how to identify them-
1.Uptrend (The stock is rising) –
Uptrend is the phase when a stock is rising and forming higher highs and higher lows , on a technical chart when the candlesticks together start forming peaks and troughs we can say a trend has started to take shape , if a peak is formed and next peak is higher than the previous one we can say higher high has occurred also if the next trough is higher than previous one we can say higher low has occurred.
Above is a chart of Shree Cement on NSE (Nifty) , see how the peaks are formed higher and higher which means higher highs are formed , also notice how the troughs are formed higher each time indicating higher lows , thus both indicating a bullish trend in the stock , you must be on the side of buyers in the uptrend and looking to buy around the troughs and riding the trend.
2.Downtrend (The stock is falling) –
This one is just opposite to the uptrend we have already discussed above , here lower highs and lower lows are formed , as explained above through example of peaks and troughs in downtrend there are consecutive lower peaks and lower trough formation.
See Ashok Leyland on NSE (Nifty) , which was in bearish trend from September to february forming lower highs and lower lows , so when a stock is in downtrend you should always be on the selling side , you don’t want to be buying stocks in a downtrend , one should look for shorting or selling opportunities around the peaks in a bearish trend.
3.Sideways (In a Range) –
Sideways market trend refers to the non occurrence of a definite up or down trend in the stock market, here most of the time the stock will just loiter between a price range and will not do anything else.Below is an example of a sideways market trend –
See how the IDBI bank on NSE (Nifty) was just moving between a range from Rs. 65 to 78 without forming higher highs , higher lows or lower highs and lower lows , clearly indicating the absence of bull phase or bear phase , in these types of sideways movement you must look to enter on the support and exit on the resistance thus taking advantage of this movement , a good trader knows how to trade all types of scenarios in the stock market , your focus should also be to excel in trading every type of market trend.
So we have discussed what are the types of market trends and what they mean and how to identify and trade them , till now you must have realized that trend is a very important aspect of trading stocks , so always trade with the trend and remember – “ Trend is your friend “.