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How are Market Trends Projected?

Jim B.
By Jim B.
Updated May 17, 2024
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Market trends refer to movements in price, in either direction, that sustain over a significant period of time. These trends, which can emerge in observation of the stock market or any other broad investment market or even in individual securities, are projected by looking at key bits of statistical information. Among the statistical information used to determine market trends are volume levels, which show the amount of investment action in a particular asset, and moving averages, which show the price direction of an asset over a specific period of time. There are also technical indicators available to investors for practically every portion of the market.

Success in investing often depends upon the investor's ability to anticipate whether the securities in which he has an interest are likely to go up or down. Since this is the case, an investor who can spot trends in the market as a whole and in individual securities will have a distinct advantage over others in the market. Spotting market trends and taking advantage of them is one of the most crucial tools that any investor can have.

One of the most effective statistical methods used in projecting market trends is a moving average. A moving average is a picture of the direction of a security or of an entire grouping of assets over a specific period of time. As the days pass, the average changes as new data replaces old data, providing a glimpse of the direction of the price movement. The longer the period of time over which the average is taken, the higher the accuracy of the average should be.

Volume totals that measure the amount of trading being done in a specific area of the market are another way of predicting market trends. For example, the volume of a stock traded on a given day would be the total amount of shares both bought and sold. When the volume is high and it coincides with a movement in price, it is a good sign that the trend is not a fluke. If the volume is low, however, investors should be wary about the possibility that the price could easily reverse direction in the near future.

There are various indexes, provided by different financial agencies, which can process large amounts of information to spot market trends. These indexes are available for practically every area of the market, including stocks, bonds, commodities, real estate, and much more. While these indexes concentrate on the big picture in a specific market, they may not be quite as useful to those investors trying to choose between individual securities.

WiseGEEK is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.

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