What are Market Trends?

A market trend in its simplest definition is the direction that the financial market is moving at any particular time. But there is much more to what it is and how it works. Within its definition includes primary, secondary, and secular trends, as well as market events and technical analysis.

Primary Trends

Primary trends seem to have the most support among the market sector. There are two parts to this concept: the bull market and bear market. The bull market is associated with increased investor confidence and motivation to buy with the anticipation that prices will increase after a purchase has been made. The bull refers to a “herd” of individuals moving in a similar direction, which results in a significant rise in the numbers.

On the other hand, the bear market is usually marked by a price decline of 20% or more over at least a two-month period and is accompanied by extreme and widespread pessimism. Investors are anticipating losses, which motivates them to sell. The economy may be at a standstill or unemployment may be high, but whatever motivates the negative feelings typically results in crashes.

Secondary Trends

Secondary trends are categorized as short-term changes in a price direction against the primary trend. So for instance, if prices have been falling consistently for 8 months and it appears we’re in a bear market then there is a sudden and sharp increase due to a sudden rise in optimism, experts would initially consider the trend secondary and call it a bear market rally. On the other hand, if we’ve been in the midst of a strong bull market and have a sudden drop in prices (usually anywhere from 10-20%) then we are in the midst of a correction. The only way experts can tell that we’re in a primary or secondary trend is by watching how long it lasts.

Secular Trends

Secular trends very often stretch out over an extended period of time (usually from 5 to 25 years) and consist of a sequence of primary trends flowing more in one direction than the other. Whether we’re in the midst of a secular bull or bear market can heavily affect returns. The good news is that history shows many more secular bull markets than bear markets.

Market events sometimes occur as a result of investor confidence sharply rising or falling due to their perception of a current trend. But analysts typically advise investors to watch market trends closely and even get involved in technical analysis to help them generate strategies to increase their confidence and gain more succinct insights.