Saturday, March 26, 2011

Trends In A Stock Market

 Accumulation: This is recognised as the first part of the trend, where traders get interested about a security and its prospects for moving up soon. They open new positions or add to the already existing ones.

Continuation: This can be classified as the main phase in the movement of the security. Here, the trend moves along nicely, with no unusual price action. The highs in the prices of the security  get higher in an uptrend, and the lows of the prices get lower on a downtrend. A trader will be able to make money, but not big money, following the trend in the market.
Consolidation: Consolidation is also termed as congestion. This is a sideways market.The security moves within the trend, but without achieving higher highs or lower lows. It just tend to stay within the trading range. Consolidation phase is a really opportune time for scalpers, who make a large volume of trades in search of very small profits.This phase can be extremely boring and cumbersome for everyone else.

Retracement:  Also called as correction or pullback. This is a secondary
trend, a short-term pullback away from the main trend to the support
level. Retracements create buying opportunities, but they can also kill
day traders who are following the trend as they might tend to make wrong entries in the trade.
Distribution: In the distribution phase, traders are of the view that the
Security has done its bit and it can’t go up in price anymore. Hence, they tend to sell in large
volumes. This culminates in a downtrend finally for sometime.

Reversal: This is the point where the trend changes from the main trend continuing since a long
time. It is the most appropriate time to sell if an investor or trader had been following an uptrend
and buy if one had been following a downtrend.

It is highly important for traders to identify various trends in the market at the right point of time for making fruitful decisions.

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