What is the market Trend: A market trend refers to the observed capacity of money markets to move in a specific direction over a period. These market trends are categorised as a secular trend (for long time intervals), primary trend (for medium time intervals) and secondary trend (for short time interval). Investors try to recognise trends with the help of technical analysis. It is an instrument which identifies the market when the cost approaches resistance and support levels, changing over time.
The Terminology of Market Trend
The terms “bear market” and “bull market” reflects the downward and upward financial market trends, respectively. They are even used to describe either the financial market as a whole or particular securities and sectors. The names are such based on the fact that a bull lifts its horns upward to attack while a bear hits with its paws in a downward direction.
Secular Market Trend
It is the type of market trend which lasts for about 5 to 25 years and contains a sequence of the primary market trend. A secular bear financial market includes broader bear markets and smaller bull markets. A secular bull financial market has smaller bear markets and broader bull markets.
In a secular bull monetary market, the dominant trend is upward-moving or “bullish”. In the same way, in a secular bear market, the governing market trend is downward-moving or “bearish”.
Primary Market Trend
A primary trend has tremendous support throughout the whole market (in most sectors) and continues for a year or perhaps more.
It is the market with usually rising prices. The start or origin or this market is rated by widespread pessimism. It is the period when the “mass” is most “bearish”. The feeling of desperation shifts to hope, and eventually escalates, as the bull continues its course. It generally moves the economic cycle, for example, in the case of full recession.
Usually, these markets begin when the share surged 20% from its low and end when the stock comes down 20%. However, many analysts believe that a bear market cannot happen within the bull market.
This market is a steady drop in the share market over an interval. It consists of a shift from high trader optimism to various trader pessimism and fear. One usually accepted factor of this market is a cost drop of 20% or more than this over at least two months.
A very slight decline of 10 to 20% is regarded as a correction. This market ends when shares recover, reaching new heights. It is estimated from the current heights to the lowest price (closing), and its recovery interval is the lowest closing cost to new heights. Another generally acquired end to this market is indices surging 20% from their low point.
Market high or market top is not a dramatic situation or event. It means the market has attained the highest point and it will continue to for some time (generally a few years). It is viewed retrospectively because the market customers are not aware of this situation at the time it occurs. Thus the price consequently declines, either more rapidly or slowly.
It is the reversal trend, the end of the financial market downturn, and the starting of an upward heading trend (bull market). It is tough to recognise a “bottom picking” or bottom before it reaches. The improvement following a drop may be short-lived, and costs might resume their fall. It would produce a loss for the trader who bought share (shares) during a “false” or misperceived market bottom.
Secondary Market Trends
These market trends are short-term variation in the direction of price within a primary market trend. If we talk about their interval, then they continue for a few weeks or a few months.
Causes of Market Trends
The cost of assets, such as shares depends on their demand and supply. By definition, the financial market balances sellers and purchasers, so it is not possible to have “more purchaser than sellers” or “more sellers than the purchaser. In the increase in demand, the purchaser will surge the amount they are ready to pay, while the sellers will surge the amount they want to receive. The opposite of it occurs in the case of an increase in supply.
It refers to the share market indicator. Many traders believe the “bearish” sentiments are negative, but the analyst thinks it is a strong indicator that the financial market “low” may be near.
The indicators used for measuring the sentiment of traders include:
- IISI or Investor Intelligence Sentiment Index
- AAII or American Association of Individual Investors
- Other sentiment signals are the short interest or total market float, Nova-Ura ratio and the call/put ratio.
The Bottom Line
Both bull and bear markets influence the trader’s investment, so one should take out some time to understand what the market does when making an investment decision. Along with these things, one should also go through the current market trend and the effect of these market trends on investment.