Want to know if the market trend is changing or just wobbling? A few technical indicators will bring the true trend into focus.
When markets grind higher day after day, week after week, it’s easy to forget that they can actually go down. This is especially true if you listen to the financial media, which just loves to track long bullish streaks. What they are really doing is telling anyone on the sideline to stop missing out.
Of course, you don’t need Bloomberg, Fox Business, or CNBC to tell you what to do. The market provides you with plenty of information to make the right trading decisions.
But what about when the trend changes from bullish to bearish or vice versa? Nobody rings a bell when prices hit the top or bottom, and trends can last much longer than you might expect. That means it’s up to you to decide the right moment to enter or exit a trade.
So, when is that moment? How can you tell the trend is about to change?
Follow these technicals to understand if the market trend is changing
Technical indicators provide the most reliable information that a trend is about to change. I watch these four:
The MACD (moving average convergence/divergence) tells you price is about to change direction before it happens.
Relative strength tells you how strong or weak the current rally is.
Stochastics accurately measure the momentum of a stock or index. If the momentum is slowing down, you have a clue where the next move is likely to go (down).
Timeframe are also important in examining trends. If you only pay attention to daily or intraday charts, you may pick up inaccurate signals regarding trends. For example, a dip in price may simply be a way station before the longer-term trend resumes.
Instead, look at charts with a longer timeframe, like the weekly chart. It’s far less noisy, so you’ll be able to see a minor dip for what it is.
What if the trend is unclear?
Don’t see any clear signs that a new trend is taking shape (or already in place)? A stock or index could simply be in sideways consolidation before the next big move – which is likely in the direction of the previous trend.
Whatever the case, use these technical tools to understand the current and future trend. They are reliable, but more importantly, they will provide you with an objective view of the current landscape.
