If you are new to the trading market, you probably feel a little lost when it comes to which stocks you should be investing in. As a beginner, you might find yourself having a lucky streak and investing randomly in some stocks that end up increasing in price.
You can also end up being unlucky and investing in stocks that end up flopping all around you making you feel frustrated. You should know that the trading market is not based on luck, but on hard work and calculations that help you figure out which risks you should take.
There are trends in the market that can give undeniably great insight that will lead you in the right direction. Before going ahead with your investments, you should take a look at the following trends.
When talking about trends in trading, you will often hear the words bullish and bearish. This can be kind of intimidating if you aren’t aware of what each term means. A bullish trend is a pattern of increase in price while a bearish one is a pattern of decline.
Immediately, you will feel like you need to look for bullish trends only, but people often use bearish trends to their advantage and get more money long-term because of the strategies used when encountering a bearish trend. The following trends are a mix of bullish and bearish ones that successful investors use to get the most out of the market.
1. Ascending Triangle
As the name suggests, in this pattern there is an increase in the price of stocks which makes this pattern a bullish one. In an ascending triangle trend. To find out if this trend is taking place, you need to look for two peaks that are on the same line horizontally, and then two dips, the first one lower than the second. This creates the shape of a triangle that shows the increase in prices. It also gives you an idea about whether there is going to be a continuation of the increase or not.
2. Rectangle Trend
Like the ascending triangle trend, this pattern is also bullish. You will notice that most of these trends are based on shapes that you can find when looking at a graph. A bullish rectangle trend is made up of steady peaks and dips that continue for a bit and then there is a price incline that continues on with minimal dips. You can find a bullish rectangle chart pattern by drawing two horizontal lines. One line is going to represent the support level line, and the other line, which is going to be above the first, is the resistance level line. If the graph shows a breakout from the resistance line and a steady inclination, then this shows that the investment is going to steadily increase in price.
3. Descending Triangle
Unlike the ascending triangle, this pattern is considered bearish in nature. The same concept applies, but instead of the horizontal line connecting two peaks, it will connect two dips. The inclined line is going to connect two peaks. The descending triangle shows a trend of decline which can be helpful in determining different factors including risks of investing. Some people tend to stay away from declining charts, but what they do not realize is these trends often change. A stock cannot be in a bearish trend forever and will surely increase. You just have to determine whether you want to pursue such ventures for a long-term rather than a short-term return on investment. This pattern is avoided mainly by day-traders who want instant gratification.
4. Double Bottom and Top
A double bottom is easy to find in a chart because it looks like a W. This pattern is important to note because, more often than not, after a double bottom the shares steadily increase in price and do not drop as much later on. This pattern is a prime example of a reversal trend. It indicates that the regular price action is going to turn around and head in the opposite direction. A double top is the exact opposite of a double bottom since it looks like an M and indicates a price decline rather than an increase.
Now that you have an idea about the different trends and patterns that you will encounter during trading, you can start your trading ventures off on the right foot. No matter what you invest in, there is going to be risk involved, but studying different trends will ensure that the benefits far outweigh any of the risks you are taking with your investments. Trading is not based on blind luck, and knowing what to look for is going to give you a distinct advantage over others that are trying to invest blindly.