One example of studying stock market trends that have been around for a while is by using technical analysis. Technical analysis is the study of the past to predict the future using graphs, volume and pattern recognition. Charles Dow, the founder of the Wall Street Journal compiled an entire theory of how the market and individual stocks move. Known as Dow Theory, these observations still exist today, and are used to measure and analyze stock market trends. While there has been countless studies and models constructed since the Dow Theory’s founding, not many others have stood the test of time. Other technical analysts such as Richard Shabacker, Richard Wycoff, W.D. Gann and Ralph Elliott all helped further pioneer technical analysis as one of the more reliable ways to measure and trade the stock market trends. Later on, such writers and Steve Nison and John Murphy brought classical technical analysis into a modern perspective. While a thorough knowledge of each of the Dow Theory is a worthwhile pursuit, it’s not a necessity in order to study the stock market trends.
An example of stock market trends that will fizzle out quickly are those based on what’s in the news today. While it’s easy to discount news as rubbish, it’s not always the most prudent thing to do. There will be a tendency when certain topics are discussed on the news for the market to react a certain way. For example, as I am writing this article in early 2012, the big topic is Greece and the bailout that may or may not come. Every time that this topic is talked about with a breaking news prelude, the market has the chance to get volatile. The key is what happens after the volatility subsides? Do we continue in the initial direction, or do we “fade” or go against the spike direction? While this might not last forever, it’s still a viable way or learning stock market trends and getting a feel for how the market reacts. Similar news events that become common for at least a little bit can also be followed and analyzed.
Some stock market trends last a while, while others just have a short shelf life. Either way, learning what makes them function and using them for all they are worth is the best value you can get from any of the stock market trends.