4. How To Identify Stock Market Direction (Trends) Part 1
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market direction is actually referred to in the technical world as “trends”
So a stock moving upwards, is in an uptrend
And a stock moving downwards is in a downtrend
sometimes stocks reach in a no trade zone or a sideways and this happens because as soon as markets go up it forces a situation of supply and when markets fall down it forces a situation of demand coming in.
This was seen in the earlier half of December 2012 on the nifty hourly charts.
Lets move on, when we use concepts of supply and demand over long periods of time you must realise that psychology exists on all timeframes,
Except of course in tick-charts; wherever you have good volume, markets will always behave in the same way if your concept is technically sound.
So let’s see how you can become your own amateur financial analyst, determining whether your stock that you are stuck in or making a profit, might continue to move up or might continue to move down.
Si the first thing we are going to learn is about a rally and a decline
A rally and decline are seen on a per bar basis, meaning we look at one bar and then the next.
Simply put a rally is an upmove
A Decline is simply a down move
They together form something more important, which we will discuss later
lets look at a rally first,
So this is one bar this isn’t enough information, the next bar breaks the previous bars high and this continues to happen
Now you will notice that every bar is breaking the previous bars high and its also having a higher low.
This means the market is in rally mode.
Also remember in a real market situation this may not happen consecutively but a general move up is still considered a rally.
A decline is just the opposite, and I’m sure intuitively u have understood what I’m about to draw here. So the market falling down each consecutive bar breaking the previous bars low and making a lower low every bar
So that’s very simple, here is another rally, which makes a new high and here is another decline.
so now that we have that, you can see that we have formed a wave structure, markets will always move in waves, markets will never plunge down or move up unless it’s an erratic day or days. Over general long periods of time, markets will always move in waves and this is very healthy.
So now that we have understood a rally and decline let’s move on to swing highs and a swing low.
Simply put the meeting point of a rally an upmove and the immediate decline; this tent, mountain or this peak is called a swing high.
the opposite of this is a swing low, meaning the meeting point of a decline and the immediate rally is a swing low.
Now trends are made up of swing highs and lows, people call these by different names but all technicals follow this because a swing high is a naturally place of resistance, it basically means that the markets rallied hit a supply point, either buying diminished of too much selling happened and we fell, now the longer time frame between a swing high is untouched the more important it becomes. At MarketScientist we follow trend following methods/systems, so awhat we discuss in this video and the next is extremely important, if you don’t understand please rewind or you can ask questions by emailing us or writing it in the comments below.
Here is a real example of a chart, this chart belongs to nifty and it is basically in downtrend, but what we have to look now is the swing highs and swing lows.
I want you to take am moment and try to find the latest swing highs u can see here
I’m helping you a bit and marking all of the swing highs on this chart. I’ve marked them with green circles.
Next step is to identify swing lows, now before we proceed I want you to pause and take your time and look at the swing highs and know that you have understood this. We are basically looking for peaks (swing highs) and crests (swing lows).
I’m marking the first the swing lows for you and I want you to mark the resting your head or write it down somewhere. Pause this video and find out all the swing lows, we will meet in the next video with the answers…. I’ll be waiting for you then.