Trends- Based on Price Movement

Dec 7, 2022

Uptrend- In an uptrend, both the peaks (tops) and troughs (bottoms) of a stock chart keep increasing successively. So, every day or so, the stock price touches a new high and falls lower than it did previously. Don’t be a mistake; this need not be a lifetime high. It could be the highest the stock touched in the past few days, weeks, or months too. This steady rise in tops and bottoms indicates that the market has a positive sentiment. It expects the stock has a higher chance to appreciate more than depreciate. So, more investors buy, thus driving the price higher. Similarly, each time the stock falls, investors see it as an opportunity to buy even more. They don’t wait for it to fall to the previous level. They buy the stock before that. This arrests the fall.

Sideways- In a sideways trend, a stock doesn’t move notably in either direction during an extended period. Peaks and troughs continue to be constant and there is no significant move to decide whether to buy a stock or not. A sideways trend occurs when the force of demand & supply are nearly equal. A sideways trend is also called a ‘horizontal trend’. In this trend stock trading between two parallel horizontal support and resistance lines with less movement.

Downtrend- A downtrend is a pattern, where a stock is falling constantly. Not only are successive peaks lower, but successive troughs are also lower. This means that investors in the market are convinced that the stock will fall further. Each little rise in the stock’s price is used by investors to sell their existing quota of shares. No further buying takes place at these levels. Such a stock must not be bought, no matter how much its price has fallen especially if you are a short-term investor. If you are a long-term investor, you may want to wait until the stock price falls further.