Trading or investing stocks is less about buying a stock and waiting for it to rise so you can cash out. If you have made up your mind to embrace stocks, be it as an investor or trader, there are lorry loads of things you must know. Aside from determining when to buy and sell a stock, you may as well want to know how to predict if a stock will rise or fall. Of course, predicting the rise and fall of a stock is possible. And if so, how is it done?
To predict if a stock will go up or down, you need to watch out for volatility, volume, MACD, moving averages, and VWAP. These indicators offer telltale signs regarding the movements of a stock.
To make good money from stocks, including other investments dealing with candlesticks or charts, you’ll need to know how to predict its movement. But the truth is, predicting stock movement is not as easy as predicting what you’ll have for breakfast or lunch. It isn’t straightforward, and that is why you don’t find many people making huge money from stocks. But, if you are up to the task, I’ll provide you with some insights into how to go about the tasks of predicting if a stock will rise or fall.
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How to Predict if a Stock Will Go Up or Down?
Predicting the movement of a stock is a skill every stock trader needs to master or develop. Mastering this skill can help you prevent losses and make money. For those who lack insights into how to predict if a stock will rise or fall, this article is designed to help. But before I get into that, let’s look at the factors that affect stock prices.
Factors That Affect Stock Prices:
- Company news and performance:
One of the common factors that affect stock prices is company news and performance. Definitely, if the company performs well, its stock prices will soar, and if it doesn’t, the reverse is the case. Here are some company-specific factors that can influence the stock price:
- News releases on earnings, profits, and future supposed earnings
- Landing a new huge contract
- Announcement of dividends
- Introduction of a new product or a product recall
- Employee layoffs
- Potential takeover or merger
- Management change
- Accounting mistakes, corruption, or scandals
- Industry performance:
The stock prices of companies in a similar industry will move in unison. This is because market conditions affect companies in similar industries the same way. However, sometimes, the stock price of a particular company will benefit from a piece of bad news for its competitors if the companies are rivals in the same market.
- Investor sentiment:
Investor sentiment or confidence can result in the up or down movement of the market, leading to the rise or fall of stock prices. The general direction that the stock market follows can affect a stock value.
Bull market: The bull market is a strong stock market where stock prices skyrocket and investor confidence rises. It is often connected with economic recovery or an economic boom, including investor optimism.
Bear market: The bear market is a weak market where stock prices are plummeting, and investor confidence is dwindling. It always occurs during an economic recession and when unemployment is at its apex.
- Economic and political shocks:
Significant alterations globally can affect both the economy including stock prices. For instance, an increase in energy costs can reduce sales, profits, and stock prices. Furthermore, an act of terrorism can also wreak havoc on the economic activity leading to a fall in stock prices.
Having understood the factors that affect stock prices, let’s look at how to predict the movement of a stock.
- Volatility:
As a retail day trader, your profit lies in the volatility of the market. Likewise, if the markets are flat or moving sideways, you will not make any money. In cases like this, only high-frequency traders make money. Thus, you need to go for stocks that will make rapid moves to the upside in a very predictable way.
- Volume:
Volume, no doubt, is one of the most important indicators used to confirm trends, breakouts, including overall chart patterns (i.e. head and shoulders, flags, and so on). Similarly, if you are wondering how to predict when the stock price will rise, look for a volume surge in plain and simple terms.
Beyond that, any price movement will huge volume is deemed a stronger, more relevant move than a similar move with weak volume.
- VWAP:
Aside from volume, VWAP or the Volume Weighted Average Price is another significant day trading technical sign. There are traders out there who use VWAP and volume to confirm their entry and exit points. Other moving averages are evaluated using just the stock price, whereas VWAO considers both price and volume.
- MACD:
Another common momentum indicator is the MACD, also known as the moving average convergence divergence. This indicator shows the relationship between two moving averages, and it acts as a buy and sells trigger.
Even though it is up to the trader’s discretion, you normally use the 12-day and 26-day exponential moving averages. When the 12-day EMA is higher than the 26-day EMA, you get a +MACD value. This denotes that upside momentum is rising and a sign that a stock price will rise.
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How Do You Predict the Trend of a Stock?
Stock, no doubt, is among the top 5 lucrative investment vehicles out there. That said, if you want to scale up your wealth or make enough passive income even while you engage in your typical 9-5 job, it makes sense to consider stocks where you could either become an investor or a trader. If you wish to become the latter, it makes sense to know how to predict the trend of a stock. And how do you do that?
There are a few surefire ways to predict the trend of stocks. But one of the most effective of them all is via its volume. A stock volume can be used to predict its trend, breakout, and overall chart pattern.
If you are an investor, trying to predict the trend of stock shouldn’t be your concern. This should be the job of stock traders.
