Market Directions

Written by Jacey Harmon
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Whatever type of market you are trading--stocks, bonds, futures--there are ups and downs. When a market is in a sustained uptrend, this is known as a bull market. When a market is in a sustained downtrend, this is known as a bear market. Corrections are when a market experiences a short, minor drop in prices. The differences between a bear market and a correction are time frame and percentage of loss. With the stock market, once a key index drops 20 percent it is considered a bear market.

Identifying Market Directions

Charts are handy tools for identifying a market's direction. Charts plot the actual price history of a stock, index, or futures contract. Instead of a group of numbers in a spreadsheet, charts create a visual representation of price history. Charts can be manipulated to include long time periods or intraday action. One can easily identify if the market is in an uptrend or downtrend with a chart.

The study of charts is called technical analysis. Traders have discovered certain chart patterns that have historically occurred before major price movements. In the stock market, popular patterns include: cup with handle, double bottom, flat base, and head and shoulders. Some of these patterns are viable in the futures market as well.

It must be made clear that while chart patterns have a high success rate they are not perfect. One can not predict with absolute certainty what will happen based off a chart pattern. Using charts and technical analysis is just a way to put the odds in your favor. The saying on the street is "Make the trend your friend," and you can use charts to identify trends.

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