The stock market is an unpredictable place, with prices moving up and down all the time. Hence it’s important for all new investors to know that prices don’t increase or decrease arbitrarily but are actually reflecting the market trend. Trends are defined as the overall direction in which prices are seen to be moving – up, down, or flat.

Learning to identify the current market trend is one of the most crucial aspects of functioning in a stock market. An upward moving trend is identified by pointing out at least two low points on the chart, and the second low point must be charted at a point that is higher than the first. On the other hand, a downward trend is recognized by looking for subsequent high points, each of which closes lower than the previous one.

The market trend doesn’t always take a completely positive or completely negative slope throughout the day, week, or month. There are smaller trends that that can appear as pauses in the larger trend. These internal trends may be intermediate, short-term or long-term, depending on where they are with respect to the larger trend. Correct identification of trends can prevent you from making early purchases or premature sales.