You will surely know that a change in trend is not the same as a correction. Although they have some similarities, they are not the same concept, and what is more, they are completely different in nature. It will be convenient for you to know what are their differences to take advantage of the operations you carry out from now on in the equity markets. Although it can be applied to any financial asset.
In any operation that you formalize in the financial markets, you will be able to verify that the prices they don't move in a straight line, but on the contrary, they do it in a zigzag, and most of the time changes in the direction of the price do not imply a change in trend, since this change is momentary and is known as a correction. Although depending on your profile as a small investor, it may constitute new opportunities to enter the current trend in a timely manner.
You have to differentiate both concepts if you want to make the savings more effective, since despite everything in both movements you will be in a position to obtain capital gains to stock market operations, both in national and international markets. But in exchange for using a different investment strategy, which will require other approaches in your stock market operations.
Scenarios where correction predominates
In the first place, it will be a priority that you identify this movement in the markets and in what situations it occurs. It is not always easy to interpret it correctly, as you will see throughout this article. The corrections in the prices of the pressures are reactions to the buying positions of the investors. It is a way of adapting the offer and demand they offer the prices of their titles. And that in almost all cases it usually develops.
One of the main contributions of the corrections is based on the fact that it is the starting point for purchasing the shares. As these are in an upward trend, it is a very effective strategy that you have to formalize purchases under a few much more competitive prices, which even allow you to increase the appreciation potential of the selected securities.
As you may well have seen through your learning in the equity markets, after every rise, and especially if they are very pronounced, a correction follows. Its intensity depends on many factors, which make this movement in financial markets more or less profound. It rarely means a change in trend, but it is an obligatory stop to depute the increases developed in recent days.
In any case, they should not be established at levels where you formalize sales. More than anything because you will lose a lot of euros in the operation. The correction in the markets occurs very frequently. Especially when stocks are in a clearly uptrend. In this sense, the experience of small and medium investors encourages them to take positions at these price levels.
Why is there a correction?
These movements in the stock market, so frequent, are generated as a reaction to previous rises. Normally for retake bullish positions in its quotation, even with great verticality. There is only talk of correction in the stock market when its scenario is totally part of the defense of your interests. Therefore, it is a figure that always allows you to enter the equity markets with certain guarantees.
It will always be much more satisfactory to enter the stock markets at the bottom of the channel, than at the top. This is what happens when it is done in the correction of the value. Not surprisingly, there may be a difference in their prices of up to 10% in the most extreme cases. It means that you can buy more shares for the same price. This strategy is based on the purchase on correction. With the advantage that your benefits can be greater when you decide to close operations in the markets.
Its duration is not defined, since a correction in the stock market can be of a single trading session, or on the contrary, it can be extended to several days. It depends on many factors that make its duration completely unpredictable. Not surprisingly, many investors try to rush these corrections to the maximum to buy the shares at more competitive prices. In any case, it is a strategy with certain risks, since you can fall into the error that they end and the upward climb is resumed with important revaluations in their prices.
Change of trend
These moves, on the other hand, don't have much to do with corrections. Although they keep some similarities and in a certain way they can be confused at some specific moment. It may even have happened to you sometime in your relationship with the financial markets. Well, the change in trend is something completely different, as you can see from now on.
The change in trend is generated when its conditions have been terminated by any circumstance. One of the most important causes is having broken supports or resistors and that promote a change of direction in the trend of the values, indices or sector of the equity markets. They are normally applied to the stock market, but they are extensible to other financial assets: gold, oil, raw materials, etc.
Faced with the exhaustion of a certain trend, there are a series of more or less objective signals that warn that something has changed in the chart of stock market assets. These can be overbought or oversold levels, Candles, contracting volume or even a sharp turn in their prices. If you detect them in time you will have achieved something very important in the stock market, and that is nothing other than anticipate their movements. It is one of the most important keys to successfully monetize the operations you make in the financial markets.
The change in trend is very positive when it goes from bearish to bullish. You will be in the initial part of this process and with high possibilities of increasing your profits in the stock market. It can have a very high run, which can last up to several years at best. This is one of the best situations that can arise if you operate with financial assets, whatever they were.
On the contrary, the opposite movements, that is, that go from a bullish scenario to a bearish one are the most dangerous for your interests. You run the great risk of getting caught in your investments. It is when your current price is well below the one made in the purchase. This is a scenario that you should avoid at all costs, if you do not want to develop significant losses in your investment portfolio. Until reaching very dangerous levels, which you cannot even assume and leads you to formalize sales with large handicaps. Be very careful with these scenarios, and you can achieve your goals with the differentiation between what are the corrections and the change in trend.
Some keys to investing
Of course, at the beginning it will be very difficult to verify the difference between the two movements, but with the passage of time, and some learning, you will achieve your objectives. Not in vain, there are many euros that will be at stake through the operations in the stock market that you apply from now on. You must go easy, and assimilate concepts little by little, so that the central idea is assimilated with greater knowledge.
When you get it, you will be able to see how you do better in the stock market, and you can even build a steady income every year. Not without difficulties, because there are always factors that can make you lose money in the stock market. But at least you will have greater guarantees that you have done things well. At least as far as equities are concerned. And one of your first obligations will consist of differentiating these two movements that are crucial for the determination of prices in companies that are listed on the stock market.
To gain more confidence in your usual operations, it is highly recommended that you go to the charts of the values, indices and sectors of the stock market, not only national, but outside our borders and try to verify it through their historical prices. It is a very useful way to familiarize yourself with these terms.. And through this unique learning you will come to an understanding, if not total, at least to give you greater security to perform operations.
If you succeed, you will have a long way to go, and you will be able to operate with greater guarantees and levels of efficiency. They will be decisive to achieve the success of the movements that you open in the financial markets. Whatever profile you present as a small and medium investor: defensive, aggressive or intermediate. What it is about is that you make the most of your savings in the best possible way. And this is one of them.
With all certainty that in your history as an investor you will come across one of these figures more than once. Either the typical market corrections, or the trend changes of a security. They are always generated, and they base the evolution of the prices of the actions. Using strategy to open and close positions at any time and circumstance. Do not forget it from now on if you want to remove uncertainties from your investments.
You will certainly have more sources of information after reading this article, and you only have to put them into practice. It is the most difficult, but it may have a pleasant surprise in store for you in the form of juicy winnings. Then you will have met your objectives.