Reading signs from the stock market can be very difficult, but in the end the stock market is a very good predictor of many other things so those who can read the signs of the market are a step ahead of the rest.
The way the stock market trades over a period of time is generally a sign of something, but it can be very difficult to discern exactly what it is. Experience following the market and watching market trends helps a great deal. What else can help you read the stock market? Look below.
A large amount of volatility, or huge swings in both directions is generally a sign of uncertainty on Wall Street. This kind of volatility is particularly evident in bear markets and when the economy is going into a recession.
The stock market generally moves several months in advance of the economy as a whole. For example, if the economy is recovering from a recession the market generally bounces back six months or so before the actual economy does.
Wall Street hates uncertainty The number one thing that the stock market does not like is uncertainty. It has been said that the market can deal with good news and bad news, but it cannot handle uncertainty and I completely agree with that. Even when the news is bad, transparency is what the market wants.
When too many traders get either bullish or bearish it is often the time that a contrarian trade works well. Extremely high levels of strategists and traders that are bullish generally means the market is near a high and vice versa.
The number one most important rule of reading the stock market is to make sure you don't make too much of one day's trading. A day does not a trend make, so you'd be wise to keep that in mind!
by ehow.com
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