Go for the stock market trend
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by: ClintJhonson
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In its basic meaning the stock market - trend is just a prolonged move of the market move in a certain direction, either up or down. From an investor perspective that is used to buying stocks, however, that simple definition is generic and relatively insignificant. A more relevant definition of the trend would be one in which the trend is defined as a predictable response to the price of certain levels of support / resistance that change in time. For example, in a rising figure is that prices rebound when approaching lines of support, eventually setting new maximum values. In a downward stock market trend, the opposite is that decreases of the actual price will be cut when it is approaching the line of resistance, and new minimum values will be achieved. This definition reveals them as the first tool used to identify if a stock market trend is formed or not – it is to determine lines of support and resistance. Trend analysis is often underestimated because the trend is perceived as subjective and retrospective. While both criticisms have some truth in them, they lose sight of the reality that the trend lines help to focus attention on the pattern of the price, filtering the market rumours (relatively sudden and unfounded changes of the course). For this reason, the analysis of stock market trend lines should be the first step in determining the existence of a trend. If you analyze the trend lines, do not show a distinct trend, it is possible that the trend was not there. As far as buying stocks is concerned, Purchasing Power Parity (PPP) is a theory that says that two states that change currency are in equilibrium when purchasing power is the same in both countries (at the same level). This means that the exchange rate between the two countries should equal the price level, in a fixed set of goods and services. When the level of the common price increases (e.g. in a country with a high level of inflation), the exchange rate in this country must decrease to return to the parity of buying stocks power. PPP is the foundation for the "law of one price.” In the absence of transport or other transaction costs, competitive markets will equalize the price of a good (product), identical in two countries, when the price is expressed in the same currency. For example: a computer that sells for $ 500 in the United States, in Canada should cost 750 Canadian dollars, when the exchange rate between Canada and the United States is 1.50 USD / CAD. If the price of the computer in Canada is only 750 U.S. Canadian dollars, then consumers (customers) in the U.S. will prefer to buy the computer in Canada. The same happens with buying stocks. If this process, called arbitrage, is going to a large scale, American consumers, buyers of Canadian goods (products) will increase the value of the Canadian dollar, making Canadian products more expensive for them. This process will continue until the products will have again the same price. |
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