How to Analyse Stock Market Trend: a Lesson from my Profit on MasterCard Stock 4/5 (1)

How to Predict Nigerian Stock Market Trend
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How to Predict Nigerian Stock Market Trend & Analyse Movement – Learn Stock Market Analysis, Know When to Buy and Sell Easily for Maximum Profit

Have you been in a situation where you bought a stock becauseĀ it made the list of top gainers and on the next day the price suddenly fell to an extent that you were stuck; couldn’t sell at a loss again but rather decided to turn it to a long-term investment, even after months, you still couldn’t recover the loss suffered earlier but watched your stock sank more? Then, this guide is for you.

Your mistake was that you didn’t analyse the trend of the stock before buying or taking a position. The trend of a stock doesn’t have anything to with daily price fluctuation or else, you will keep checking the stock market table or market prices every day. When I buy stock basedĀ on my pre-determined setup, I try to avoid market noise; whether it’s up today or down tomorrow, I have always cut the noise and focus on my overall profit target.

As of this writing, my MasterCard stock just hit the profit target. I bought the US stock on the 16th, July 2018 at $205.5 and after 7 days, the stock touched $209. Did the price rise without a fall? No, at times it might even fall to $203; my account would be in a loss position but I wasn’t moved because I understood how to analyse a stock’s trend. My hope was intact and I said to myself, “as long as you did your homework well, have a trading plan, there is no need to panic”. Now, look at the result, I ended up in the green region.

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What gave you confidence in this stock, you may ask? My simple response is, I understand the overall market trend. A stock trend is a very important factor to consider before taking a position. You could be lucky to go in the direction of the trend and cash out but you know what? You just played a gamble and won! Yes! you did. You could have entered another trade and lose your trading capital. So, isn’t smarter to understand a stock’s trend before opening a position?

What is a trend?

In the stock market, we say, a trend is a direction which could be up or down. When you see a stock closing higher on a daily, weekly or monthly basis, it’s an uptrend but if the market closes at a level that is lower than it’s previous closes, we say it’s trending down. This is a lay man’s definition of a trend and it’s not devoid of confusion.

Let’s say a stock add 50k to close at N1.5 on day 1 and shed 30k to close at N1.2 and added another N1 to close at N2.2. On the last trading day of the week, it lost, 75k to close the week at N1.25, do you say it’s bullish, bearish, bullish, bearish? This is a clear definition of confusion and imbalance, only a trader who is glued to his computer 24/7 will be bothered about this fluctuation. Recall my trading experience on MasterCard, the stock fell sharply after I opened a position and after 7 days of patient, it hit my target price.

More Details About a Trend

Understanding a stock’s trend increases your chance of trading in the market direction which ultimately makes more profit. When a stock is clearly in an uptrend, the best decision is to open a long position (buy), set a reasonable profit target and go engage yourself in other activities. You don’t have to stay glued to your system all day.

How to Analyse Stock Trend

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To analyse a stock’s trend, I use a simple indicator called moving average. Moving average lets you measure the average price of a stock over a specified period so that you can gauge the overall trend of the market.

The most popular moving averages as of this writing is the 20 days, 50 days and 200 days moving average. The reason these three moving averages are popular is that they coincide with a month, quarter and a year respectively. Investors love to watch the performance of a stock within this period but the most popular and effective moving average is the 50 days.

Why 50-day moving average?

This moving average mimic the performance of a stock in a quarter which is the period listed firms are expected to release their interim report. It’s generally believed if the quarterly earnings beat analyst estimates and outperform previous quarter’s result, the 50 days moving average will rise, and the price tend to stay above it, which means that fund managers are clearly bullish on the stock.

The rule of thumbs on moving averages indicator are:

  • When the 20 day is above 50-day, and 50-day is above 200-day it is a short-term and long-term bullish trend.
  • When the 20 day is above 50-day and the 50-day is below 200-day, it is a short-term bullish and long-term bearish trend.
  • When the 20 day is below 50-day and 50-day is below 200-day, it is a short-term and long-term bearish trend.
  • When the 20 day is below 50-day and 50-day is above 200-day, it is a short-term bearish and long-term bullish trend.
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This was the exact tool I explored to determine the overall trend of MasterCard stock before taking a position, I saw the bullish opportunity when the 20 sma was clearly above the 50 sma and 200 sma.

So, when you want to trade your next stock, don’t forget trend analysis, you will increase your chance of making money consistently in the stock market. The idea is to follow the trend or else you would be stopped out.

I hope this helps?

 

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