Market Indicators To Read Market Trends

Timing the markets, it is said, is almost impossible in the long term. However, there are very many traders and investors who keep persisting on doing so. A few succeed while a majority don’t. Geyatee Deshpande shares her perspective on market timing and highlights several indicators that can be used to identify market trends that can help time the markets

- Geyatee Deshpande

It is believed that in the short term the markets are irrational. And the market trends in the short term reflect the same irrationality and capture investors’ and traders’ reactionary behaviour to the stock prices. Since a majority of investors and traders react emotionally to short-term trends in the market, it is commonly seen that the trend over the short term is often extended with an increasing number of investors jumping into the broader market trend. It soon turns into a frenetic scenario and the market gets overextended with increasing participation. Such overextension of an existing trend is what investors – both in the long term and short term – have to watch out for.

Any ability to recognise such consistently overbought and oversold situations can immensely help investors lock in profits and, most importantly, avoid huge losses. Indeed, timing the markets has the unique potential to magnify the returns. The question is how best to time the markets and whether it is possible at all to time the markets. Often grave investment errors are made in pursuit of indulging in such an exercise. As long-term active investor Subramaniam Swamy puts it, “I have always believed in timing the market and often enough I am successful at buying low and selling at higher prices. However, when I study my own performance it looks like I would have made more money if I had remained invested rather than engaging in active trading.”