Capital market trends can be sub-divided into primary, secondary (short-term), and secular (long-term) trends. A technical analysis assumes the fact that movements of market prices follow a particular trend. They are periods when buyers consistently outnumber sellers; in other words, the bulls outnumber bears.
Classification of Capital Market Trends:
Primary Trends: They include bull markets and bear markets. The bull market is a situation where investors buy in order to increase capital gains in the future. In a bear market, on the other hand, the investors anticipate losses and therefore they are obliged to sell.
Price fluctuation is an important tendency of an open market. The Gross Domestic Product (GDP) and stock prices are on the rise during a bull market. A bear market exhibits negative trends; it can also be a prelude to recession.
Secondary Trends: They refer to price changes within a primary trend. These price changes are not permanent. A temporary decrease in price during a bull market is a correction. During correction, the price drop is normally 10% to 20%. The same percentage increase is experienced during the time of a bear market rally. This refers to a transient increase in price during the time of a bull market.
Secular Trends: They are long-term trends. They usually remain for a period of 5 – 25 years. Many primary trends sequentially arranged result in a secular market trend. In such case, the bull markets are bigger and a bear market does not erase the gains of the previous bull market. In secular bear markets, the duration of a bull market is smaller.
Last Updated on : 22 July 2016