Let’s first define short term! Short term trend has different annotation with different types of traders. If it’s a scalping trader then for him short term is in minutes. He would be getting into the trade for few minutes to ride the trend. If it is day trader / intraday trader, then he would hold his trade for couple of hours (could be minutes also) depending on how big trend he is able to capture. If a trader is a swing trader then he would be in trade for few days to few weeks. According to us if any investor is in a trade and gets out before end of one full year from the date of entry, then we consider them as short term traders or investors.
Finding short term trends is commonly practiced with traders who intent to ride the wave in either direction and then get off the boat. Finding short terms trends takes certain skills, lot of practice and definitely require to gain experience. In this articles let’s focus on what skills and knowledge will help in finding the short term trend.
Table of Contents
Moving Average Indicator
There are 100s of technical indicators at our disposal to understand trend. However, one of the most practical approach used by many traders is using moving average or exponential moving average. If market is above MA or EMA then it’s bullish trend, and if it’s below MA or EMA then it’s bearish trend. The challenge is, it is a lagging indicator and also it doesn’t give much insights on sideways movement.
Candlestick Patterns
There are some of the patterns formed by candlesticks, like Doji, Bullish Engulfing, Harami and, Marubozu patterns. These patterns formation indicates bullish trend. Similarly for bearish trend opposite direction candlestick patterns like Bearish Engulfing, Bearish Marubozu, etc. indicates bearish trend.
Chart Patterns
There are certain types of chart patterns that indicates trend in the market. As per Dow Theory, higher high swings and higher low swings indicates bullish trend, similarly lower low along with lower high indicates bearish trends.
Volume
This could mean volume on price, however we are referring to open interest in option chain. If we observe any intraday open interest we get clear indication which direction market is trending. Ratio of put open interest to call open interest refers to PCR. When PCR is increasing then market is trending in bullish direction and when PCR is decreasing then market in trending in bearish direction. However as simply it’s stated it has quite a bit of nuances to be taken into consideration while reading PCR to understand trend.
Greed and Fear Index
Monitor market sentiment indicators like we have ‘Sentiments Decoder’, that is actually build using algorithms that analyses chart pattern, volume, candlestick pattern for each stock and indices and then shares trend information. Infact the best part of this indicator is, it is a leading indicator. It gives bullish and bearish trend information, as well as it also surface sideways trend information. In addition it’s index gives idea on what are the chances for a bullish or bearish trend to continue respectively!
Remember that short-term trends and market sentiments can change quickly. It’s essential to combine multiple sources of information, use various analytical tools, and continually monitor the markets to make well-informed trading decisions. Additionally, developing your own knowledge and experience through continuous learning and practice is crucial in understanding market trends.
