Understanding Market Trends

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Much like life, the stock market is always changing and only the best people understand it. Understanding market trends is one of the most important things when investing. Understanding market trends can be the difference between success and failure in the investment world. Especially for rookies to the stock market, learning market trends can dramatically change one's investing style. Market trends can change because of a variety of different factors. Some have nothing to do with how the company is performing, rather a company's stock can drop because a CEO has to go to the hospital because of a heart attack. Considering that this still happens today means that CEO's can't tell their employees their status of how they are feeling. Another factor that can cause a company's stock to drop is their quarterly performance reports. Investors like to look at the balance sheet of a company's stock at the beginning of every quarter and look at their liabilities and profits. From there magazines and newspapers report on how that company has done in the past quarter, making the price of the stock rise or fall.

After reading this article, I learned much more about investing and have a much stronger understanding of what type of analysis needs to be done before investing in a stock. I learned a variety of different vocabulary that can help investors further understand the market. The first term is a primary market. A primary market is an industry that lasts for only one to three years, but has the largest margins for profit. The second term is a secular market. A secular market is almost identical to a primary market, however it lasts for ten to thirty years and increases at a more gradual rate. Secular markets make great long term investments and have proven to be stay profitable for a long duration of time. The final thing I learned, and the most important thing, was how to calculate the ROC of a company. ROC or rate of change, has a common formula that can be used to analyze a company's performance after a span of 10+ days to see if they can continue to perform in the same direction. The ROC equation is represented as...


ROC = 100(Y/Yx)

Y= Current price
Yx= Price 10+ days prior

Personally I think that when these market trends are further understood, it's easier for an investor to see what stocks can change the market. This only shows that doing research is necessary for any type of investing, rookie or professional.