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Analyze the behavior of the stock market to speculate stock prices correctly
The stock market behaves differently at different points of time depending on the overall market trend and so many other factors. The behavior of the stock market or the market trend has different phases that can be categorized in two types – primary trend and the secondary trend. The market behavior is determined by the primary trend of the market. The behavior of the market differs greatly with the market trend. When the market is in a bull phase the market behaves in a certain way and when it is in bearish phase the market behaves differently and of course the correction phase sees the market in different colors. To understand these different behaviors of the stock market we have to understand these market trends and the underlying causes of these market trends.
Let us start the discussion with the bullish market trend. When the market is seeing a steady overall growth it is said to be the bull market. In fact during this time the bull or the buyer is at the driving seat of the market. For different reasons like economic and political stability of the country and growth of the business and industrial sectors all these contribute to the bullish market trend. During this time the confidence of the buyers in the market is at the peak and they invest in the stocks in huge amount. The soaring demand of the stocks further raises the market and boosts the bullish trend. The steady growth in the market or the bull phase then decides the market behavior. During this time the market behaves optimistically as the buyers can see steady growth in the stock market. More and more retail and institutional investors invest in the market when the market behaves in such a positive way.
Bearish trend in the market is just the opposite of the bullish market. The bearish market is started with a steady or rapid fall in the demand of the stocks. This might happen for so many reasons like economic slow down, political turmoil, sluggish economic growth, some adverse news and so many other reasons. The buyers become susceptible about the future of the market. This is the time when the market behaves pessimistically and all the investors trying to save some of their invested money sell out the stocks they have. With the institutional investors and retails investors selling stocks at large quantities the market sees huge supply and the minimum demand. This results in further fall in the market. So during the bearish trend in the market the market behaves negatively that all the more intensify the bearish trend of the market.
Between these two primary trends in the stock market there are some secondary trends as well that are relatively short lived and less important like the corrections phase, bear market rally and secular market trend. There is a common misconception about the correction phase is that that market is falling. But in reality the market gets stable during the correction phase. During a bullish market it is often seen that some stocks become hugely overvalued. During the correction phase the price of these stocks come to the level where it should be. So the correction phase is the most crucial time in the stock market for further growth in the market and the stock prices get stabilized during this time.
If you are investing in the stock market then the stock market trend or the stock market behavior is a determining factor for speculating the movement of the stocks at a point of time. So as an investor you have to understand that these phases of the stock market come and go in a cyclic manner. This is part of the cycle that the stock market goes through. So when in a bullish market you should never be in a utopia that the market will remain like this. On the other hand a bearish market will get momentum once again for sure. So keep track of the market trends and invest in the stocks according to the potential to gain from the market.
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