How to Identify Trends and Trendlines

A trend can be defined as the direction in which the market is moving in. When the supply of a commodity or stock is greater than the demand, the trend will be down as there are more sellers than buyers. When the demand is greater than the supply, the trend will be up as there are more buyers than sellers. If the forces of supply and demand are nearly equal, the market will move sideways. Eventually, when new information enters the market, it will begin to trend again, either up, down or perhaps sideways still, depending on how that information is viewed; positive (bullish), negative (bearish) or neutral (sideways.) It's important to remember that money can be made or lost in bullish (uptrending), bearish (downtrending) and neutral (sideways - trending) markets. Trendlines help in determining what trend is in place.

If a market is moving up, a line can be drawn connecting each successive higher bottom. This is an uptrend line or 'support'. As long as the market remains on or above this line, the uptrend is intact. If a market is moving down, a line can be drawn connecting each successive lower top. This is a downtrend line or 'resistance'. As long as prices remain on or below this line, the downtrend is intact.

In general, once a trendline is broken, the trend which was previously in force is considered over, or at least in pause. It should be noted that when an uptrend line or 'support' is broken, it then acts as 'resistance'. Likewise, if a downtrend line or 'resistance' is broken, it then becomes 'support'.

Moving averages are also very helpful in defining a trend. Sometimes, when no clear trendline can be drawn, moving averages can clarify market bias by showing which direction the market has favored over a specific period of time. A rising moving average is generally price friendly (bullish), while a declining moving average would be considered negative (bearish.) A flat moving average would be viewed as neutral or (sideways-trending.)

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Futures and options trading carries significant risk and you can lose some, all or even more than your investment.

Stock trading involves high risks and you can lose a significant amount of money.

The information contained here was gathered from sources deemed reliable, however, no claim is made as to its accuracy or content. This does not contain specific recommendations to buy or sell at particular prices or times, nor should any of the examples presented be deemed as such. There is a risk of loss in trading futures and futures options and stocks and stocks options and you should carefully consider your financial position before making any trades. The reference to statistical probabilities does not pertain to profitability, but rather to the direction of the market. The size and the duration of the markets move, as well as entry and exit prices ultimately determines success or failure in a trade and is in no way represented in these statistics. This is not, nor is it intended to be, a complete study of chart patterns or technical analysis and should not be deemed as such.

How to make Money in Bear Market | Investment strategies in bear market:

I received the following article today in my mail. It’s a nicely written piece, so I thought let me share it with all of you.

Everyone loves bull markets. In a bull market, every stock will give us good returns. But bear markets test one's real ability, company's fundamentals and investor's patience levels. But Bear markets also provide wonderful investment opportunities if we can able to spot investment chances early. We can make good money in very short term period.

2 types of investment strategies in bear market:

1. Accumulate more on every fall and invest for long term to reap full benefits. Even good stocks will be available at cheap prices in bear market due to bad sentiment.

2. Ultra short term opportunities. You should always be on alert to utilise these chances. If you enter late, losses will be more as it happened in case of Orchid chemicals investors who entered into that stock at above 300 levels.

Alert: Operators will try to fool investors by artificially rising stock prices by spreading rumours. Be careful with stocks like Ispat, RNRL, IFCI and Essar Oil. If don't have enough knowledge on Stock Markets, stay away from these things. If you are a long term investor, don't buy major stocks at current levels.

Bear markets- best money making opportunities:

1. Over reaction: When L&T announced minor losses in Forex derivatives, everyone sold it despite strong fundamentals of the comapny. We should see for such opportunities to enter into those stocks.

2. Sudden options: Orchid chemicals suddenly lost 50% value despite no change in fundamentals. That was due to Bear sterns sell off. We should be always on alert for such chances.

3. Over enthusiasm: Markets over reacted to open offer and acquisition rumours and took stock price to unreasonable 350 levels. Even if Ranbaxy take over Orchids, 250-280 is reasonable price. We will look for short selling opportunities in such instances.

4. Buyback offers: In a bear markets, prices generally do not justify its intrinsic value. So companies try to buy back shares at higher prices. Just see what happened in Sasken Communications. Look for good buy back offers.

5. Never chase operators: If a stock is rising without any reason, simply stay away from such stocks. It is due to operators activities. Never invest in any stock basing on rumours.

6. Crucial breaks: Some decisions will change company fundamentals to much attractive levels. In these instances, stock price will rise for prolonged period as it happened in Bombay Dyeing.

7. Rallies in bear market generally will not last for prolonged periods. So, make money in short term and exit that stock.

8. Short term opportunities will be available in stocks that lost more than 50% in a short period despite good growth. We should identify them early before markets recognise them as it happened in ICSA India and Gujarat NRE Coke.

Investors can't sit idle in bear markets as investors over react to bad news and stocks will lose all the gains in 1-2 days. These ultra short term opportunities are only for experienced investors who can spend enough time on stock market research and at trading terminal. More companies are planning to buy back shares means we are going to get investment chances to make quick money.