Understanding Trends/Volumes

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Understanding trend means understanding the direction in which a stock is. Every stock goes through the following trends in its lifetime.

1. Uptrend:

When the ‘Primary’ trend is in an upward direction, it means the stock is in an uptrend. ‘Secondary’ and ‘Minor’ trends will also be a part of uptrend. This is the time when the stock should be BOUGHT. The critical aspect is to identify the start and end of an uptrend as early as possible and take position accordingly in the stock. If an uptrend is being complemented with heavy volumes, the stock will rise much faster. Statistics reveal that most of the retail investors never buy a stock in an uptrend.

Uptrend

2. Downtrend:

When the ‘Primary’ trend is in a downward direction, it means the stock is in a downtrend. ‘Secondary’ and ‘Minor’ trends will also be a part of a downtrend. This is the time when the stock should be SOLD. The critical aspect is to identify the start and end of an downtrend as early as possible and take position accordingly in the stock. If a downtrend is being complemented with heavy volumes, the stock will fall much faster. Statistics reveal that most of the retail investors always buy a stock in a downtrend.

Downtrend

3. Consolidation

When the stock is moving sideways irrespective of the primary/secondary trend, it means the stock is in a consolidation. This is the breathing time of the stock. It shows very less movements (up/down) with low volumes. From this phase it can move either in an uptrend or a downtrend. During this phase no verdict can be made on the stock and hence it is not suitable for taking a position. When a stock enters consolidation while it primary trend is ‘Uptrend’, it is very healthy for it. After taking some rest in this phase, it will start its upward journey again.

Consolidation

Note: Understanding trend means understanding the direction in which a stock is. Money can be made only by identifying and being with the trend. Most of the retail investors lose money because their activities are against the trends. Identifying the correct trend is a challenging task and should be best left to experts.

Understanding Volumes:

Volume is the total number of stocks (including contracts) that were traded during a day. The more the quantity traded the more active the stock will be. Any movement (upward/downward) becomes more meaningful if there is a heavy volume attached to it. Example: When a stock has been moving sideways for a long time and then slowly starts its movement upwards with heavy volumes, there are good chances that it will continue moving upwards. It is often meaningful to put your money in stocks with good and steady volumes. Volumes are closely monitored by analysts to form opinions. A trend reversal is often triggered by heavy volumes.

Volumes