The 6 Steps to Successful and Profitable Investment
Step 1: Identify stock trends before investing
It is important for smart investors to rely on stock trends before determining which stocks to buy and when they should be purchased.
What: The trend in stocks is the general direction or movement the stock is moving in. It can be either in uptrend (bullish), downtrend (bearish) or sideways. We can look at the stock’s past and its trend by comparing it to the previous prices and current prices. A stock is in uptrend if the current price (the high), is higher than the previous price (the low) - higher highs. For the downtrend direction, the current high is lower than the low – lower highs. If the price remains the same, the stock is in a sideways trend.
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Example of Trend Movement: downtrend --> uptrend ---> sideway
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How: 20-day Moving Average (MA) can be used as a guide to indicate trend. The 20-day MA together with volume signals help investors decide whether the market is going to keep on in the prevailing trend or reverse course. It is uptrend if 20-day MA is slopping up; downtrend if slopping down and sideway is flat.
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