How to Identify Trend in Stock Market: 5 Points to Find Trend

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Swimming in the water against the wave will not make it difficult for you to swim across successfully, but there is a risk of drowning if the stream of water is high and you are not able to swim. Similar rules are also applicable when you trade in the stock market.

Yes, if you are playing against the market trend in the stock market, then it would be not only difficult to make a profit but you might also incur a loss if you are playing intraday trading. However, for long-term investment, you can choose any stock anytime buy at the current levels and wait for years to get a return. You can pick such stocks even against the trend because minor ups and downs don’t matter for the stock bought for long-term investments.


For intraday trading, you will need to plan your trading strategy according to the market trend. If your decision is not right while selecting the stock according to the trend your trading strategy will fail making your trading journey unprofitable. Hence, we will discuss here about trends, their types and mainly how to identify the trend in the stock market.

Understanding the Trend in the Market

A trend in the stock market means the direction of the market index or individual stocks heading towards a particular direction. The stock markets usually do not move in a straight line direction and can be volatile for a day a few trading sessions or for a few days.

And amid such zigzags, you need to find out the market trend, whether it heading towards or in which direction. And to understand the trend you need to perform the trend analysis that will help to find out the trend. Trend analysis is the process of analyzing the market movement using chart patterns like candlesticks chart patterns and trend lines.

The best way to find the trend use the technical indicators and various tools and techniques in technical analysis. This will not only help you to identify the trend in the market index or individual stock but also show you the right levels to buy and sell the stocks. Before we discuss about how to identify the trend let’s have some light on different types of trends.

Types of Trend in the Stock Market

Usually, there are three types of trends in the market — upwards, downwards and sideways or range-bound trend. Let’s know more about these trends.

Upward Trend: When the price of a stock or market index keeps moving in the upward direction or keeps rising then it is called an upward trend or bullish market. Though, the index can come down during the trading session but moves with higher highs and higher lows and when seen on long days or many trading sessions it will be evident as an upward trend.

Downward Trend: The downtrend is identifiable when the value or price of the stock is falling with lower lows creating the opportunity for the traders to create the short position. And when most of the stocks every day are falling instead of going up or you can say the advance-decline ratio is declining consistently means the market is in a downtrend direction.

Sideways or Range bound Trend: When the stock or index moves neither upwards nor downwards with low volatility in the market, then it is called a sideways trend. In a sideways trend, the stock trade in the range and the general accumulations and distributions takes place during most of the trading session which is also because of low volume. And when the demand and supply forces work equally then this kind of trading range is visible in the market.

How to Find Trends in the Stock Market?

Identifying these trends is very important to trade with the right trading strategy. If you do not trade according to the trend of the market or individual stocks, you can incur a loss or might not get the returns as per the expectations. And to identify the trend in the stock market or individual stocks you can use various tools, techniques and technical indicators.

However, the purpose of identifying the trend should be defined as per your investment time horizon. The trends are categories on the basis of these time horizons and while finding the trend in the market, you have to keep in mind these points.

Top 5 Indications to Know the Trend

  1. Drawing the Trend Line

This is one of the simplest and easiest ways to know the trend in the market or stocks. You can see if the price of the stock market index is drawn on the line chart. If you are checking the price on the candlestick chart you can draw the trend line on the chart that will tell you where the market is heading in the downwards direction or the upwards.

If the trend line is showing upward means there is an upward trend in the market, while when the trend line is heading downward direction, means the market is in a downward direction or you can there is a bearish trend. When there is no significant movement either upwards or downwards, it is called a sideways trend.

2. Candlestick Charts Patterns
The best way to find the trend in the stock market or any individual stock is to see the patterns of the candlestick charts. If you can see the green candles making the formation with higher highs on every trading session for many few days, weeks, or months. This kind of candlestick chart pattern clearly shows there is a bullish trend in the market.

The formation of candlestick charts also matters to identify the trend in the market. The type of candlestick charts and various parameters give the right signal to identify the trend in the market. Similarly, there are other parameters that are also considered while using the candlestick chart patterns to find the trend in the market.

3. Advance Decline Ratio
This is one of the most simple and easiest ways to find the short-term trend in the market. Yes if you can see that the advance-decline ratio of stock is much higher in the market for many days then it can be considered as an upward trend in the market.

If the advance-decline ratio is much lower, then it means there is a downward trend as most of the stocks fall compared to stocks rising. Though it is not a reliable or long-lasting indication to find out the trend in the short term for intraday trading you can use the advance-decline ratio to find out the trend in the market only but not in the stocks.

4. Average Daily Volume
Volume individually cannot give you the right indication to decide about the market trend. But when you see the stock price of the market index is consistently moving in the upward direction with high volume means the market is in a bullish trend.

Similarly, when the market or individual stock is consistently falling with the increase in the average daily volume, it means the market is in a bearish trend. When there is no volume in the market, volatility comes down and the market moves in a sideways direction.

5. Use the RSI Indicator
This is one of the best tools or you can say the technical indicator to identify the trend in the market. RSI or Relative Strength Index helps to identify the momentum in the stock with the signal to know whether the stock or market is in the overbought or oversold zone.RSI is taken as 14 day period that keeps fluctuating between zero to 100 and when moves below 30 it means the market or stock is trading in an oversold zone and when goes above 70 it indicates overbought giving the signal to buy or sell as per the trend.

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