How to identify market trends: up, down, or sideways

Understanding Market States: Up, Down, Sideways

You can have a simple advantage just by recognizing the state of where your investment or trade is currently in.

Before anything else, pull up a chart.

Ask yourself:

• Is the chart forming a series of higher highs and higher lows?
• Is it in a downtrend forming lower lows and lower highs?
• Or is it ranging and chopping side to side?

That’s it.

Up.

Down.

Sideways.

 

A Common Misconception

A common misconception is thinking that just because a stock is cheap, it’s bound to rebound.

A stock can be cheap and still go down.

And then be even cheaper.

Look at what the chart is saying.

Every time it goes up, it comes back down even further.

How is that constructive?

 

What the Chart Is Actually Showing You

Think about what’s happening.

Every bounce fails.

Every attempt higher is sold harder.

You may want a rebound, but the chart is showing you something else.

This is wanting a certain outcome while doing something completely counterintuitive to it.

 

Where People Tend to Focus

Our tendency is to try and find the cheap stock so when it rebounds, we make tons of money.

Instead of focusing on the leaders.

Instead of focusing on where people are clearly putting their well-earned money.

You can follow the trend.

Or you can willingly go against it.

But it helps to be honest about which one you’re doing.

 

Why This Matters

If a chart is making higher highs and higher lows, that’s information.

If it’s making lower highs and lower lows, that’s information.

If it’s chopping side to side, that’s information.

Ignoring that information doesn’t make it go away.

 

The Point

Recognizing the market state doesn’t tell you what will happen.

It tells you what is happening.

And that alone can change how you approach trades and investments.