What are uptrends? Uptrends describe the price movement of a financial asset when the direction keeps going upward. Uptrends occur when a stock makes succeeding higher highs and higher lows which identifies an increase over time. In other words, they are higher than the ones found earlier in the trend.
In this article, we'll take a look at uptrends and analyze what uptrends mean. We'll also explore why or why not you may want to invest in uptrends. We'll also help you analyze several examples of uptrends as well.
There's a lot to learn about uptrends, and understanding them intimately can make the difference between successful trading and losing money. By the time you're done reading, you'll have a better idea of how to handle uptrends and whether you should attempt to invest in stocks that are in an uptrend.
What is an Uptrend?
Before we discuss the definition of an uptrend more in depth, let's walk through the definition of a trend. Trends, which are made up of peaks and troughs, refer to the direction that prices move based on where they have been in the past.
The way that those peaks and troughs move identify the trend. You can see the direction of the trend when you note how the peaks and troughs move (up, down or sideways). Trends can occur with individual stocks in the market as a whole or both. A trend can move up, down or sideways (which means there is little price movement or change).
Uptrend stocks are those which have been going up for a few consecutive days, or strong stocks going up, or stocks recovering from a previous pull back. An uptrend is a long-term, upward trend that a lot of swing traders use. Swing traders try to trade with the trend instead of trading against it.
Downtrends are the opposite of uptrends. As you might imagine, a downtrend is a gradual reduction in the price or value of individual stocks and/or the financial market, made of descending peaks and troughs (lower highs and lower lows).
It's important to note you can identify an uptrend by noting slight uptrends and downtrends, but watch their gradient or slope. Steep lines equal a more significant trend but it's important to remember that steep trendlines are broken more easily than more gradual trendlines.
How to Identify Uptrends
How can you identify uptrends? It's not easy, but there are a few ways to do so.
An uptrend line is a line drawn upward that connects two or more low points. The second low must be higher than the first in order to showcase an upward incline. Uptrend lines act as support and indicate that there is more demand than supply, even as the price rises. As long as prices remain above the trend line, the uptrend is considered to be intact. A break below the uptrend line indicates that a change in trend may be occurring.
So, what is the easiest way to identify trends? You can do so by identifying the raw price action of an asset. Identifying trending markets works well for swing traders who can set wide price targets and range-bound markets (those that run sideways) work well for scalpers and day traders by setting short price targets who seek quick profits.
You can use a few technical analysis tools to identify trends in the market, including using candlesticks, checking into moving averages, the relative strength index (RSI), the Average Directional Index (ADX) indicator and stochastic oscillators and others, for example. Let's go over a few of these technical analysis indicators:
- Candlesticks: Many traders use candlesticks to learn more about how an asset's price is moving — whether it's making higher highs and higher lows or whether it's making lower lows and lower highs. A candlestick is a type of price chart used in technical analysis that shows the high, low, open and closing prices of a security over a certain period. In other words, a candlestick identifies opening prices, closing prices, the highest/lowest prices a particular asset will trade and whether the day's closing price was higher or lower than its opening price.
- Moving averages: Moving averages can help you identify the trend and see possible trend reversals. Prices above a moving average identify an uptrend and prices below a moving average identify a downtrend. Several moving averages at once can help you identify trends, while a crossover can indicate a trend reversal.
- Bill Williams Fractals indicator: This indicator can help you indicate the cyclical movement of the market and allows you to pick out good entry points in trending markets. It shows buy fractals (an arrow printed above the price) and sell fractals (an arrow printed below the price). The fractals can help you identify an uptrend, downtrend or sideways trend.
- Average Directional Index (ADX): The ADX is an oscillator that moves between zero and 100 identifies trend direction and momentum. The trend direction shows a +DI (green line) and the –DI (red line). When the +DI goes above the –DI, it signals an uptrend and it signals a downtrend in the opposite direction. An ADX above 50 shows a strong trend, below that, and it could identify a trend reversal.
- The relative strength index (RSI): The RSI can also help you identify trend strength. The RSI oscillates from 0 to 100. When prices go above 50, it indicates a strong uptrend and prices below 50 indicate a downtrend.
- Fibonacci tools: Fibonacci tools can also help you choose the best entry points in trending markets and extension levels can show you how far the price can go.
Chart patterns identify price action such as continuation patterns (such as directional wedges and flags), reversal chart patterns (such as head and shoulders) and neutral chart patterns (such as a symmetrical triangle).
There's no one way to identify an uptrend — you can employ a lot of different methods to identify uptrends. It's important to understand each type of pattern as well as trends themselves in depth so you understand how it will impact your trading.
Are Uptrending Stocks a Good Investment?
Yes, trading uptrending stocks may help you trade effectively as long as you use specific trending strategies like the ones indicated above. It can be an effective way to make money as long as you effectively capitalize on short-term trends. It's not for the faint of heart, so keep in mind that it's worth practicing thoroughly with small amounts of money before you get serious about trading large amounts of money, particularly if you use margin.
Top Uptrending Stocks
While you might think you'll never find even the possibility of a tiny uptrend during this tumultuous year, note that you can still identify uptrending stocks in dizzying markets.
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How to Invest in Uptrending Stocks
If you're trying to catch the wind of uptrending stocks, what is the correct approach? Let's take a look at how to make it happen for you.
Step 1: Identify uptrending stocks you want to trade.
As already mentioned, you can use a wide variety of trading tips to identify uptrending stocks. However, it's not enough to just be aware of various technical indicators like candlesticks, moving averages, Bill Williams Fractals indicators, the ADX, RSI and Fibonacci tools. It's important to know exactly how to use these tools in order to identify uptrending stocks. It takes practice, so don't be shy about researching a wide variety of tactics before you choose several methods (or even one single method) that works for you.
Step 2: Open a trading account.
If you don't already have a trading account that you like to use, choose the right option for you and fund your account. Take a look at the fees involved, the platform available to you and other things that you believe you need in order to successfully trade. Look for trading platforms that offer the bells and whistles you need in order to successfully trade.
Step 3: Start trading.
Once you've set up your trading account, consider using paper trading before you start using real money. Paper trading allows you to practice using a fake account with fake money. If you've never traded before, you may want to spend a chunk of time learning how to trade on a paper trading account before you officially get started.
Once you're ready to trade, get started, but don't trade more than you're willing to lose.
Final Thoughts Before Trading Uptrending Stocks
One more thing — did you know that it's possible to experience trends within trends? It's important to note that if you take a step back and look at a daily chart of an underlying asset, it may show that the trend is rising. However, if you use a microscope and zoom in further, you can see that in 30-minute increments, you can see that the trend may be falling.
You can think of a trend as like mountain valleys and peaks. Each slope and dip contains smaller ups and downs. Rising mountains eventually go down on the other side, and there's no end in sight for these types of changes in the market. That's why it's important to look from time frame to time frame constantly as a trader. You can always trade the trend according to a wide variety of factors, including these timeframes as well as based on your risk appetite.
Ultimately, it's very important that you choose stocks that will meet your goals based on a wide variety of reasons and whatever trading techniques you choose to use, including using uptrend indicators. Also think long and hard about how much money you can afford to lose when trading. Never trade more than you can afford to lose on a one-time or regular basis. Knowing the risks of trading ahead of time can help you reach your full trading potential.