How To Identify Trends
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"Trend is your friend." I am sure all of you must have come across this sentence. Trading is a very exciting business to make a living. It is easy and simple to do. You can make fortunes and also lose your entire capital. Everyone of us would love to make fortunes in the stock market. What we have to realise is it is not easy. Trading calls for a disciplined way of doing business. To be a succesful trader you have to forget your ego, accept your mistakes and learn from them. Making profits and losses is a 50:50 chance. With a little effort we can change this ratio and make profits. There are many ways and one of them is trading with the trend. You understand the trend of the market, by looking at how the stocks are moving. If a large number of stocks are moving higher, are in an uptrend then we can conclude it is a bullish trend that is happening. This movement coupled with other facts will strengthen you conclusion. Facts like positive news, favourable tax measures, growth in industrial outputs, prediction of an increase in agricultural output, etc.

Rather than taking decisions based on only daily trends, for a long term investor the weekly and monthly trends can strengthen his ability to decide whether to buy or short sell a stock.

I did a simple exercise. Nifty has 50 shares in its index. I entered in an excel worksheet the data for the last one month on a daily basis. What I found was that most of the time there is no visible trend in the market movements. It is either range bound or hardly there is significanr movement. For 50% to 60% of the time the market behaves in this fashion. For the remaining 40% there is a trend. It is during this 40% when the market is in a trend that you can make the maximum profits. Professional traders do this and earn the maximum profits. Whether you are a beginner or a seasoned player trying to become successful in trading, you should follow this method and trade only when there is a visible trend in the market movement. Only novice players trade everyday. They have a feeling that if they don't trade they may lose an opportunity. It is not the correct approach. The markets are not going to run away. Be patient, study the market, watch for trends and then decide on the next step to trade. To make profit it is not necessary that you should always be in the market with a position. Market Trends

Now look at the BHEL chart. The price was moving within a range for quite sometime. When it broke out of this range it went into an uptrend. This was a good opportunity to make profits. The best way to look out for opportunities is to identify good stocks. What I mean by good stocks is those which have a good volume of trade daily, are liquid and the company is performing well. Keep watching by following the charts. Once you find an opportunity go ahead and trade with proper stop loss limits. Stop loss limits is the only way to preserve your capital.

The most hardest part is finding a trend. When you are looking at a chart it is easy to identify a trend in the past. It is very difficult to identify a trend in the future. Markets behave erratically. It is not one individual but millions and millions who decide on the market trend. Human beings are unpredictable and as such it is also very difficult to predict a future trend for the market. What do we do. There are some simple ways which you can use to support your decision. When you are of the opinion that there is a trend in the market movement, you can strengthen you stand by increasing the chart time frame. This will give a better picture of the market movements and to predict the future trend. Secondly, you can search the web for news about the stock you are going to trade during the past one week or fortnight. Remember, market movements happen purely based on information. These are a couple of ideas that I follow when I am not able to take a firm decision on whether to trade or not.

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