Stock Market Trend
and Stock Stages
Be on The Right Side of The Market
Learning to identify stock market trend and which stage it is in is very important. When you do so, you will always be on the right side of the market. And being on the right side of the market means you will make money instead of losing money.
Everything moves in cycles
I am sure you have heard of the phrase 'nothing is new under the sun'. Well, the stock market operates that way. Although the stock market game may seem very complex to you at first, after learning stock market trend and stock stages, your eyes will be opened to how simple it really is.
The stock market moves in cycles.
When you look at a stock chart(figure 1), you will observe that stock prices moves in cycles. It starts at the trough and then it peaks and then it forms a valley or trough and it rises to form the peak again.
Not every stock will form a chart like the figure above. What you need to know is stock prices moves in cycles. Because they move in cycles, you can learn to identify the stock market trend and cycles and make money from them. You will be able to position yourself for the right opportunity.
There are 4 stages in a cycle
As you can see from the above stock charts, there are 4 stages in a stock cycle.
Stage 1 represents the valley or troughs. At this stage, prices are at their lows. The stock price will move sideways or in what we call a range. Sometimes the stock is said to be basing.
You will frequently see stocks in this stage after a bear market or a correction. Everybody hates this stock and just want to avoid it. Thus, the price of the stock does not move too much. It will usually drift sideways.
Stocks can be in stage 1 for weeks to months.
Stage 2 (Money Making Stage)
Stage 2 is where buyers step in and the stock price starts to rise. In the stock market trend, stage 2 is called an uptrend. This is when the market conditions gets better and some good news starts to come out after a long period of bad news.
People will start paying attention to the stock market and start putting their money in again. The price will break out of its base and begin an uptrend.
As the stock price moves higher and higher, more and more people become excited and they will also start to buy stocks. People also start to get greedy. This in turn will help to push the price of the stock higher.
This stage can be a very exciting time. Some stocks, especially tech stocks can move up 10%-20% in a single day. You really can make big profits especially when using options.
During 2007, that was what happen to stocks like BIDU and Google. I remember buying options(a derivative of the stock which lets you control 100 shares per contract) on these stocks. Made some nice profits. And guess what stage Google and BIDU was in during 2007. Yes, you guessed it, stage 2.
So in summary, this stage is where the you will make the majority of your profits. You won't go wrong playing stocks in stage 2.
At this stage, the stock price refuses to go up any further. This is what we call the peak. Buyers refuse to pay higher prices to buy the stock and thus the uptrend slows to a halt.
As the uptrend slows, the price will drift sideways. Sometimes, it will resume the uptrend after drifting sideways for a while. However, if the prices does not go up...
Yes you guess it. It will rollover and stage 4 begins. You must learn to recognize stage 3 and get out before stage 4 begins. There are many signs that show stock prices are topping. I will teach you to identify it in the later topics.
Stage 4 (Money Making Stage for Short Sellers)
Stage 4 is where the price of the stock starts to collapse. At this stage, there is heavy selling pressure. The stock will try to go up a bit but every time it tries, sellers will push the stock down.
This stage is usually accompanied by panic sellers. People who have lost money will start to get worried and want to get out of the stock. As the stock price decline further, their worry turns to panic. Eventually, fear and panic will help to drive the price of the stock down further.
This is a really terrfying period. You really have to experience it once to know how it feels. Stocks will just plummet like a meteorite. I have even seen some stocks lose more than 40% of their value in a single day.
Terrible news for everyone except a group of people called the short sellers. If you are a short seller, this is the stage where you can make quite a lot of money in a very short period of time.
Different stages will require different strategies to succeed
I have already introduced you to the 4 stages. Each stage represents an opportunity to make money. You just need to know when and how to use the strategy.
Yes...the right strategy at the right time will ensure that your investing or trading will be fruitful.
This site will teach you various strategies to employ. I will go into these strategies later.
Most people will make money in Stage 2. Focus on it
Following the stock market trend is extremely important if you want to survive in the stock market. There is a popular saying which goes like this 'The trend is your friend'. If you ignore the stock market trend you will be in trouble.
As a beginner, you will be better if you focus on stage 2 strategies. This is because stage 2 involves buying a stock and selling it at a higher price. Stage 2 in the stock market trend is what we call an uptrend. Most people will be comfortable with that.
To be able to make money from Stage 1,3, and 4 will require more advanced strategies such as short selling and options strategies.
If you are just beginning, focus on stage 2. You will make the most money there. When you are more experienced, you can try out other strategies which are suitable for the other stages.
Learning stock market trend is important as well
This might seem like repeating what I just said. However, it is really important. When a stock is in stage 2, we call it an uptrend. When a stock is in stage 4, we call it a downtrend.
Buying stocks during an uptrend and shorting stocks during a downtrend is the best way to make profits and protect your money.
We will look into stock market trend in detail in later articles. Click here to read the article.
Invest and trade in the right stage and you will be successful
Many people do not even realize about the different stages of a stock or market cycle. Therefore, they often buy stocks at the wrong stage(Stage 3 and 4) and sell it at the wrong time.
You now have a powerful knowledge to invest and trade stocks. This knowledge will help you to make money as well as protect your capital. You now know how to be on the right side of the market.
And you are now ready for the other exciting lessons...
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