Technical Analysis of Stock Trends

At its most basic level technical analysis of Stock trends is relatively straightforward. The most common questions asked about any stock is, “is a XYZ stock going to increase in value?” In order to answer this question the stock, quite naturally, needs to be analyzed. Here's some things that we can do to technically analyze stock trends.

Stock price can be said to be classified in one of these three trending modes:

1 — moving upwards — this is also referred to as a bullish trend or as a stock being in an up trend

2 — moving downwards — this is also referred to as a bearish trend or as a stock being in a downtrend

3 — moving sideways — many may not consider sideways movement, also known as consolidation, to be a trend at all. Many would refer to this as a lack of trend which in reality could be classified as a type of trend.

The very first thing we must do is to is determine which trending mode the stock price is in. Once we determine which trend a stock is in we can more easily profit from trading that stock.

Here are a few of the indicators you may use to determine stock trend:

Moving averages are commonly used to determine stock trend. A stock is said to be in a bullish phase when it is above the 200 day moving average and to be in a bearish phase when it is below the 200 day moving average. Naturally, you can construct moving averages of varying lengths in order to find those which best fit your trading methods. For instance, a 200 day moving average would most likely be used by long-term traders and stock investors, whereas a five or 10 day moving average may be used by swing traders and other short-term traders.

The stochastic oscillator is often used to identify overbought as well as oversold areas of stock price. A typical interpretation of stochastic data is that when the stochastic oscillator is above the 80 level then the market is becoming overbought and when it is below the 20 level then the market is becoming oversold.

We all aware that trending markets provide great opportunities for trading stocks. This doesn't mean that we should not pay attention to those periods of time where the market simply move sideways. In fact, since the market does move sideways a great percentage of the time it is important to learn the nature of sideways stock price movements. One particularly good method of trading stock is to trade a breakout of a particularly long sideways price movement.