In general understanding, a trend is the broad upward or downward movement of a stock’s price over time. Upward movement is called an uptrend, while those which move lower over a period of time are said to be in a downtrend. Investors have a tendency of buying stocks that are seemingly in an uptrend and selling the ones in a downtrend.
However, stock prices move in a zig-zag manner. In technical analysis, we don’t identify a trend simply based on how far up or down a stock price has moved over a period of time. We concern ourselves with the specifics--how much the stock rose when it moved up, and how little it fell in a downtrend.
We take so much effort on our part to understand the stock markets and factors behind them to know how to predict the stock price movement and make gains through it. There are many factors that influence stock prices in the short run and the long run.
Let’s take a look at some of the key factors which we can use
ourselves as retail investors to predict the stock price movement :
Delivery Percentage in Stock Trading Volume
Generally speaking the higher the percentage, the better it is. Some stocks go up with a significantly lower per cent of total deliverable quantity to the traded quantity per cent. This means there is more trader interest in the stock. A higher delivery volume implies that investors have solid faith in the stock. This is why they are prepared to take delivery. This increases the probability of the stock price moving up in the future.
Check the average delivery volume two-three months prior and compare to recent volumes.
Any sharp price movements accompanied by very small volume may
not be sustainable for long.
If stock prices have rallied substantially and volumes are also
at the highest it could be close to a market peak.
Compare the overall market delivery volume with the stock volume
to see if there is any extraordinary interest or lack of it in the stock. Also
verify this against recent news and stock fundamentals to see if a volume pick
up or fall is in line with what’s happening in the company.
Increase/Decrease in Promoter Holding
The increase in promoter holding sends out a positive signal to the investing community and a decrease in holding sends a negative message about the company. The promoter increases or decreases the shareholding in the company looking at the future potential and the growth prospects of his company. The promoter can increase stake in the company via buybacks and open offers if he feels his company’s future growth looks favorable.
If a promoter continuously decreases stake in the company then that sends out a warning signal about the fundamental of the company going ahead but if the holding decreases due to OFS or offer for sale then there’s no need for actual worry.
Several Quarters Consistent Growth in Profit
When looking at a company's quarterly or annual financials, it is not enough to just look at the revenue for the current period. When investing in a company, an investor wants to see it grow or improve over time. Comparing a company's financials from one period to another gives a clear picture of its revenue growth rate and can help investors identify the catalyst for such growth.
Consistent growth in earnings should be a key driver of the stock price in the long run. Investors should pay key attention to the quarterly results. It can help in forecasting the earnings.
Increase/Decrease in Mutual Fund Holding
The trading activity of mutual funds is always linked to the price of the stocks in which they invest. When mutual funds buy and sell stocks, the prices of those stocks are automatically affected.
If your investment is giving negative returns in the near term don't panic, instead keep investing as you can accumulate more units at the same price. In long run, this will help you in generate more wealth.
I hope now you have an idea on how to predict stock price
movement and earn maximum returns.
Comment down below and let us know your thoughts on this topic.
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