Be the first to like this
Stock Market Trends
Anticipation is the key to successful base stealing in baseball. The runner sees what he’s looking for and he takes off for second; the catcher doesn’t even stand a chance to get him out. The guy is fast, but more importantly, he sees something while studying the pitcher that tells him exactly what is going to happen. The same approach, careful study and precise execution, work in the stock market as well. Trading options gives a trader both leverage and the ability to hedge risk. But the most successful options traders study the market and know where it is going. This article is about stock market trends and how an options trader and see the future before it arrives.
Stock Market Trends – Getting a Jump on the Market
The base runner in our example was looking for indications of the direction the pitcher was going; the stock market will give you hints to its direction as well. If you understand stock market trends before they happen, you already have two of the three key factors for understanding the market, time and direction. Coupled with volatility, a successful trader has the basic stock information needed to place profitable options trades and make a profit in the market. Eliminating the analogy, understanding stock market trends is also about looking for indications. How well could you adjust your timing in the stock options market if you knew three days in advance what was going to happen? What if you only knew one day in advance? Could you improve your performance? Of course you could.
Variables Involved in Knowing Stock Market Trends
There are a couple of pieces of information that will help you determine the direction of the market. These two gems are price and volume; each of these tells you something different about the market and together they can give you insight into stock market trends.
Price: This is somewhat intuitive. Prices will rise until they reach their market value and then they will fall until the market value readjusts. A good way to determine price is to look to the three major market indexes, the Dow, the S&P 500 and the NASDAQ to provide a quantitative evaluation of price. It is also possible to calculate an average price per share based on overall sales divided by the number of available shares on the market. Because stock market trends are cyclic and so are stock prices, this variable is quite logical.
Volume - Volume is also a typically reported value and an important part of calculating stock market trends. On more active days both stock and options trading volume will rise and on slower days the volume will reflect it with a decrease. Volume is a factor in stock market trends because increases in stock volatility tend to indicate changes in price direction.