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Understanding Stock Market Trends & their Types in India

Switch on a news channel when it is talking about the market and you are likely to hear a discussion about what the stock market trend was today and experts sharing their inputs on the Indian stock market trend analysis. But to make any sense of those discussions, it is important to know the trends in stock markets and their impact on our trading decisions.

What is a trend in stock market parlance?

Most investors look at the stock price chart and see those small lines going up and down. However, beneath all the daily fluctuations (or no movements sometimes) is a particular market trend.

A trend is nothing but the general direction of the movement of the stock market or an asset’s price. Timing your transactions plays a key role in making money in the stock market. Correct understanding of what is the current trend in the stock market enables the investors as well as traders to make their buy or sell decisions.

When the market is moving upwards (stock prices are on the rise) it is called a bullish trend. On the other hand, when the market moves down south and stock prices fall considerably, it is referred to as a bearish trend.

How to know the stock market trend today?

So, can you look at the stock price of a day and establish what is the stock market trend today? The answer is No. The Stock Market trend today is not decided basis only today’s stock price but rather its movement when compared to the earlier time points. Trends get established over a longer period. To know the stock market trend one needs to look at the movements for a certain period of time. There is no fixed guideline or specified duration for the movements to be considered as a trend. However, it is said that the longer the duration of the movement (irrespective of the direction – upward or downward), more noteworthy or reliable the trend is considered.

What is Trend Analysis

Trend Analysis is the process of making use of the current trends (or past data) to predict future movements. For instance, with the help of stock market trend analysis experts try to make a forecast if a specific market sector which is currently growing will continue to do so in the upcoming future.

How to identify trends in the stock market?

Before we let you know how to identify trends in the stock market, you need to understand some important terminologies and the types of market trends. When you want to interpret a stock chart, think of your last visit to the mountains. Like how you would have observed many hills or valleys there, you would see such points even on a stock market. These are the points we will be talking about.

  • Peaks or Tops

This term is similar to the peaks of mountains. The highest or topmost price point that a stock touches is referred to as the “Peaks”.

  • Troughs or Bottoms

The lowest or minimum price point that a stock falls to is called the "Trough".

Stock Market Trends

Market trends are divided into three categories:

  • Uptrend

An uptrend describes the price movement of a financial asset when the overall direction is upward. In the case of an uptrend, the stock chart creates new milestones. Both the ends – peaks as well as troughs keep going further successively. Hence, on a continuous and regular basis, the stock’s price would touch a new high or fall lower than what it did before. However, one important thing to understand is that it may not be the lifetime low or high. This is the movement or status in the last few days, weeks or maybe months (depending on the duration of the trend).
As long as the price keeps on making the higher swings, the uptrend remains intact. The steady rise in peaks and troughs indicates a positive sentiment in the market. The general expectation is that the stock would appreciate more rather than depreciate.

  • Downtrend 

In the case of a downtrend, the stock price keeps on falling continuously. In addition to the successive tops getting lower, the successive bottoms are also lower. The general view in case of a downtrend is that the stock value will fall further.
Usually, no further buying transactions take place and investors use each peak (however little it may be) to sell off their current stock quota.

  • Sideways Trend

A sideways trend is a phase of ambiguity. The stock prices do not move significantly in either direction over an extended time frame. Both tops and bottoms continue to be constant. There is no notable movement to enable the market participants to make a buying or selling decision.

Distribution Days

Remember that old saying, “All good things must come to an end”. It applies to the stock market as well. Eventually, in all up-trending markets, there comes a time when the selling activities overtake the buying activities. The day when the index closes (from the earlier day) on a higher volume (more selling than buying), is referred to as a “Distribution Day”. Market analysts believe that about five such distribution days over five weeks can easily reverse a market trend from upward to downward. Hence, one may pay close attention to Distribution days as they indicate the end possibility for an uptrend.

Solid Market Rally

Every cloud has a silver lining. One must continue to monitor the market when it enters a downward trend. At some given point of time, it will rally and get better for a couple of days. However, many such rallies are fake outs. Before taking any market-related action one must confirm that there has been a trend change towards the upward direction. This usually comes as an explosive day and signals the market trend has reversed. This in market parlance is referred to as “follow-through day”. On this day, the market closes upwards by a substantial and decisive amount.

No new bullish phase has begun without this “follow-through” day. However, it is important to note that not every such day will lead to a new start (bull market). It just gives an indication and a timely heads-up to the investors (or traders) that they need to keep a constant look-out for their preferable stocks.

How to act on stock market trends?

There are many platforms (online or otherwise) that offer daily updates about the Indian stock market trend analysis. But before relying on any such analysis, it is important to establish the credibility of the source. IndiaNivesh is one trusted and well-renowned partner whom you can reach out to for stock market related expert opinion. Their team consists of experienced professionals with a deep understanding of the market who have helped investors create wealth for the last eleven years. The IndiaNivesh website has live updates and expert insights that help you make informed decisions.

Now that you know what are the possible trends in the stock market and also know a reliable expert who can help you realize your financial goals, what are you waiting for? Remember, time is money!


Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.