Market trends are a significant aspect of the financial world, characterized by the overall movement of the market over time. These trends can be upward or downward, commonly referred to as bull and bear markets, terms that originated as early as the 18th century. Market trends can span different time frames, from secular trends that last 5 to 25 years, to primary trends that have broad support and last for a year or more. Bull markets are characterized by rising prices and usually begin with pessimism and end in euphoria. On the other hand, bear markets involve a general decline in the stock market, marked by a transition from optimism to fear. Understanding these trends is crucial as they shape market sentiment and indicate the market’s long-term direction.
A market trend is a perceived tendency of the financial markets to move in a particular direction over time. Analysts classify these trends as secular for long time-frames, primary for medium time-frames, and secondary for short time-frames. Traders attempt to identify market trends using technical analysis, a framework which characterizes market trends as predictable price tendencies within the market when price reaches support and resistance levels, varying over time.
A future market trend can only be determined in hindsight, since at any time prices in the future are not known. Past trends are identified by drawing lines, known as trendlines, that connect price action making higher highs and higher lows for an uptrend, or lower lows and lower highs for a downtrend.
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