Stock Market Trends
Many academics subscribe to efficient market hypothesis and random walk theory, in which all the available information is already reflected in the price, and any new information, by definition, will be random and trends are simply accumulative random events mostly to one stock market direction. However, in opposition to this, traders who base their strategy on technical analysis believe that the markets do form trends over time, and that these trends can be predicted based on historical price information because history repeats itself on these patterns. For technical analysts, these trends may form in the short term, or in the long term, in which case the situation is called a bear market (market decline) or a bull market (market increase). Often used benchmark for a market to be called either a bull market or a bear market is when a major stock market index either increases 20% from a recent market bottom, or declines 20% from a recent market high. Any market moves that happen within movements less than those are called market corrections, sometimes called rallies (for corrections to the upside) and dips (for corrections to the downside). There are many strategies to take try to take advantage of these trends and complete schools of thought on how to approach trend trading. To get an overview on how successful these strategies have been in the past and who are the best traders in this category, you should look up the book "Trend Following: How Great Traders Make Millions in Up or Down Markets" by Michael W. Covel Michael Covel is also behind websites www.michaelcovel.com, turtletrader.com, and www.streetstories.com. All these websites are great resources for trend traders, with insights into the issues that have to do with trend trading, the personalities, and the new innovations in the field. |