The Movement of Stocks By: Oliver Velez The following is an excerpt from Oliver Velez's Swing Trading Home Study Course There are only three things a stock can do; go up, go down, or go sideways. That’s it. There is no other movement possible. In other words, there are primarily three dominant trends in the market: uptrends, downtrends, and sideways trends. An uptrend is defined as follows:
Uptrend Defined The quality of your long trades will vary directly with the quality of the uptrend that the stock is in. The definition of downtrend is just the reverse:
The stock in the chart below is an example of a downtrend. I want to take a moment to discuss the difference psychologically between uptrends and downtrends. There is a tremendous bias among Americans and new traders especially to be bullish on the stock market. It is important for you to understand that you cannot carry a preconceived bias into the market. You must be willing to adapt and be bullish or bearish depending upon the trend of the timeframe you are playing. Downtrend Defined This can be a difficult task for many people, and many people struggle to understand downtrends or bearish strategies. In every case, without exception, the strategy to short a stock is exactly the reverse of the strategy to be long a stock. The decision of which direction to favor must be based totally and impartially on the trend of the chart you are playing. Third, we have the sideways trend. The sideways trend is defined as a stock having relatively equal highs and relatively equal lows. There is a tug-of-war going on between both groups and neither of the groups is winning. This is demonstrated in the chart below. Sideways Trend Defined The keyword in that definition is “relatively” equal highs and lows. It is important to understand that these areas of highs and lows are being formed by support and resistance areas. They have to be considered fairly wide areas. We do not react to exact price points, but rather turning points that have been in the area of support and resistance. |