The trend of a stock is the general direction the price is moving. One basic tenet of stock market investing is that once a trend is established, stocks tend to continue in this direction. It is the path of least resistance. A famous market saying is, “The trend is your friend.” That means go with the trend, and don’t fight it or bet against it.
Looking at the daily chart below, Starbucks is in a well-defined uptrend. Prices are slowly but surely rising over time.
Chart courtesy of StockCharts.com
(Click to enlarge)
Below is an example of a stock that is rangebound or is in a price channel. The price is in a narrow range between about 23 and 38.
Chart courtesy of StockCharts.com
(Click to enlarge)
Below is a stock in a definite downtrend.
Chart courtesy of StockCharts.com
(Click to enlarge)
Knowing the trend of any market, and seeing signs that it may be ending, is one of the most important skills you can have as an investor.
Your job as an investor, in essence, is to get in near the bottom of a market, and ride it up to a high, then exit somewhere near the top.
You are riding the trend, and getting out only when the price action indicates the trend has changed. Do this consistently, and you will become wealthy.
You will never catch the exact bottom or top, nor should you try. No one can do this consistently, not even billionaire investors. Billionaire investors will become millionaire investors if they try.
More money has been lost, and opportunities missed, by trying to catch the exact tops and bottoms. Don’t try it.