How To Identify Trend Changes

How To Identify Trend Changes

Perhaps one of the most valuable tools in the spread bettors belt is noticing trend changes before they take effect. While this includes some guesswork, there are a couple of signals that are quite important and which can help traders understand when trends are likely to take place and which direction they will go – will they go up or will they go down? From understanding trading highs and lows to trading volumes, these indicators can help a trader assess when it is best to enter or exit a trade.

Trend changes

Take a step back: Most spread traders tend to get caught up in the moment and forget to look at the bigger picture. By looking at your graphs from a distance and studying the history of your trades and watching the patterns they have taken over a 30-day period or even longer, it will be easier to recognise both bullish and bearish signals before market swings take place.

Highs and Lows: During upward trends, highs and lows of a stock will be greater than prior peaks and troughs. On the other hand, the same will apply to downward trends – the lows and highs will gradually get lower with time. While most newbie traders fail to see most of the early signals or are quite conservative to buy into trades early enough for fear of the trade being a pullback, most aggressive traders tend to rely on these signals to trade right from the start where they can take on longer positions.

Volume: The volume of any stock being traded can be influential in spotting trends. While up and down trends usually lead to an increase in the overall amount of stock volumes being moved, it’s the downward trend where this will prove to be invaluable. However, it’s important to note that at the start of any trend, trading volumes might not spike immediately. This has led to some spread traders arguing that it’s a flawed measurement when it comes to accurately predicting trend changes.

Interest rises and rates: While interest rates and rises are not entirely commonplace in the stock markets, any changes may either start a trend or reverse one. For instance, when FED increased its rates late last year, the markets sort of reacted negatively and investors opted to either get out early or to wait and see if the storm would calm down.

Market divergences: While different indexes like the AIM and the FTSE 100 may contain different stocks, sector deviations are important to note. For instance, if FTSE 100 jumps up by 100 points due to its tech subset, but AIM only gains 5 points, this might be an indicator of a probable jump in other indexes or possibly a looming fall in FTSE 100. The same can be applied on the global scale to different sectors like commodities or mining.

Commodities: Co-Dependent Stocks: While commodities or co-dependent stocks may be less of trends and more of market reactions, they are directly correlated and, therefore, warrant a trend warning. If the forex market becomes unsettled because of volatile trading or interest hikes, commodities like bonds and gold often spike as public sway tends to lead to safer holdings. Similarly, when positive or encouraging news is released, and stock markets start climbing, the value of commodities will often show a directly related drop.

While there are many indicators to keep an eye out for when trying to spot trend changes, the things mentioned above should help you have an easier time analysing patterns and noticing trends. For extra spread betting tips, have a look at our dedicated spread betting sections on the site.

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