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Stock Market Trends

An intelligent investor books profits by following the trends in the market. One who does not have the elementary knowledge about the share market thinks that downward movement of the prices means loss for the investor. A knowledgeable investor is able to make profits in any situation of the market. One takes advantage of both the movements of the market-upward and downward. One catches the movement in the prices at the right time and derives profits.

Stock Market Trends are divided into to Primary Stock Market Trends, Secondary Stock Market Trends and Secular Stock Market Trends. Further classification of the Primary Trends is, Bull Market. In this phase of the market, investor’s confidence is at the optimum, they are on the buying spree anticipating higher financial gains. Exactly reverse is the position in the Bear Market. The investors fear recurring losses. The overall price reduction in the market index is 20% or more. Most investors hurry to sell off.
The duration of the Bear Market is difficult to predict.

Secondary Stock Market Trends are for shorter duration and the fluctuations are small. The time of this trend may be for a few weeks to a few months. These trends can be due to correction in the market. Such corrections may be due to adverse economic/political conditions or natural calamities. The fall in the share prices is generaly10%, but it should not exceed 20%. Bear Market Rally refers to increase in the prices of shares but the limitations is within the range of 10 to 20percent.

Secular Stock Market Trends are also known as Super Cycles. Several Primary Trends contribute to the making of this trend. The prolonged period of this trend may last from 5 to 25 years at a stretch. This is further classified into Secular Bull Market which are long Bull Markets within which are included the periods of short Bear Markets that will not have much impact to reduce the benefits of the preceding Bull Markets. The Bull Markets to follow make up for the losses incurred in the Bear Markets. Secular Bear Markets are having within them small Bull Markets that cannot nullify the losses suffered during long and large Bear Markets.

The Share Market Trends should not be confused with the day to day ups and downs of the market and the volatility. This situation occurs in the market due to a variety of reasons, some of which are beyond the scope of research. Nobody has ever been able to fathom why such things happen in the market. These developments are used to book profits by the intelligent investors. Broader trends are related to the economic health of the country.

The question of market trends has assumed importance in the wake of the deepest economic downtown the world economy is facing since the Great Depression. Doubts have been raised whether markets precisely reflect the state of the economy, as the indexes continue to slide notwithstanding the government efforts to arrest the downward trend. Some experts also opine that the market is responding to the steps taken by the government, it is trying to look forward and going sideways now. Restoring the flow of credit is the important factor to stability and ultimate recovery. The banking system is also in for a positive change, which will ultimately influence the market trends.

Why do the prices of shares go up and down? In reality the answer is simple. Companies earn money or lose money, the price of the share is, what the investor will pay for it. This is simple arithmetic. However, many other factors influence the price simultaneously, like the bank interest rates. If the interest rates are high, the company has to pay more and the profitability is affected, trends begin to play their role on shares and the investor will try to follow the trends.

The investor, who succeeds in locating the trends well in time, earns profits.