What happens when a bunch of ladies buy a particular pair of their favorite
shoes? It drives the price of these shoes up because it creates demand.
Everybody wants these shoes. Well... the same thing happens to a stock when a
bunch of people buy that particular stock.
When you and others like you buy a stock, it drives the stock price upward. When
you and others like you sell a stock, it drives the stock price downward.
These up and down cycles are known as Price and Consolidation. And it's these
cycles that keep the market in existence. When you buy stock in the market
(drives stock price up), most of the time you do so because you want to make a
profit. And because stock prices don't go up forever, at some point you will
sell it (drives stock price down), hopefully for a profit.
1) Price - when the stock price is going in the same direction as the trend. For
example, if the 30-day moving average is moving up, and the stock price went up
that day, this is known as "price."
2) Consolidation - when the stock price is going in the opposing direction of
the trend. For example, if the 30-day moving average is moving up, and the stock
price went down that day, this is known as "consolidation."
Why is this important?
The cycles of price and consolidation can identify ideal timing for buying a
stock. You want to get on the train at the right time! It helps answer the
important question: When do I buy a stock? The answer to this question is
critical in order to maximize the following:
1) Your profit amount.
2) Your chances of even making a profit in the first place.
For a bullish scenario, typically I will buy a stock once an up trend has been
established, and at the end of consolidation when the stock price begins rising
again.
Becoming comfortable with the market's ups and downs is your key to being a
successful trader or investor. There is at least one guarantee here:
uncertainty. After all, the market has to go up and down in order to stay in
existence.
Best of luck to you in your investments!
Aneshia