Making wise trading decisions requires being able to determine how strong a stock market trend is. Key methods for determining trend strength include the following:
1. MAs (moving averages)
- Stronger Trend: In an uptrend, when the price remains above the 50-day or 200-day Moving Average; in a downtrend, when it remains below.
- Trend: The trend is waning if the price oscillates sideways around the MA.
2.Index of Relative Strength (RSI)
- Overbought (trend may soon wane) is indicated by an RSI > 70.
- Oversold (trend may revert or weaken) if the RSI is less than 30.
- An RSI of 40–60 indicates a weak or neutral trend.
3.Price Action: Higher Highs & Higher Lows
- Strong trends produce higher highs and higher lows during an uptrend.
- Strong trends produce lower highs and lower lows during a downturn.