To help beginners navigate the complexities of understanding stock market trends, we’ve gathered 13 insightful tips from investment strategists, CEOs, and other leaders. From understanding the basics and connecting data points to staying disciplined and keeping a long-term view, these experts share their best advice for those starting their journey in the stock market.
START WITH THE BASICS AND CONNECT DATA POINTS
When looking at stock-market trends, the key action an investor must undertake is to understand what is driving those trends and determine what primary economic or market factors are contributing to periods of strong (or weak) market performance.
Investor sentiment can be an important factor in sending share prices higher or lower (especially over the shorter term), but over the long term, what matters are the basics, such as what a company earns, what it owns, and what it owes. That applies to individual companies and can be aggregated up to the broader market.
Additionally, variables such as interest rates, the pace of economic growth, and valuation metrics (such as price-to-earnings ratios), can help determine whether stocks are cheap or expensive. In the end, understanding the market means not just analyzing individual data points but also connecting the dots of all of those many data points to see the big picture in a holistic way.
Gene Balas, Investment Strategist, Signature Estate & Investment Advisors
EMBRACE DIVERSIFICATION AND THOROUGH RESEARCH
One key piece of advice for beginners looking to gain a better understanding of stock market trends is diversification. This means don’t put all your eggs in one basket; invest in different types of stocks from multiple sectors and industries so that if one does well, it doesn’t completely make up for those that aren’t performing at their peak level.
Researching potential investments thoroughly before making purchases can help reduce your risk and increase your chance of success with investing in stocks over the long term.
Adam Fayed, CEO, AdamFayed.com
CONTROL EMOTIONS AND BASE DECISIONS ON LOGIC
Keep emotions under control when engaging in trading. Throughout the investment period in the stock market, you’re bombarded with a vast amount of market details, where a lot is just noise.
Traders or investors need to separate fact from fiction, speculation, and unnecessary information, making sure that FOMO doesn’t sway their decisions in stock trading. You have to stay emotionally balanced and committed to the initial logic for selecting a stock. This approach is significant in interpreting stock market trends accurately because it anchors decisions in researched strategy rather than volatile sentiment.
We need emotional regulation to maintain a consistent investment strategy, an aspect crucial for understanding trends in the stock market. It ensures decisions are based on rational evaluations rather than emotional impulses, thereby enabling a trader to interpret market trends with a clear, focused mind.
Jonathan Merry, Founder, Moneyzine
FOCUS ON LONG-TERM TRENDS
Focus on longer time horizons rather than day-to-day fluctuations. The market moves up and down from day to day, but you want to understand the major trends that play out over weeks, months, and years. So, don’t get distracted by minor daily moves. Look at one-year, three-year, and five-year charts to see the bigger picture.
The key is not to get caught up in all the short-term noise and volatility. As a beginner, it’s easy to react to every little daily price swing. But, when you zoom out and look at the long-term trendlines, you get a clearer perspective on where the overall market is heading.
Brian Meiggs, Founder, My Millennial Guide
INVEST IN BROAD-MARKET INDEX FUNDS
One of my first mentors was a stock analyst. He told me it’s impossible to reliably predict what the market will do in the short term. The only predictable thing about the market is that it tends to go up over time. In fact, the S&P 500 index has increased by an average of 6.66% per year since 1900.
So, instead of actively trading, buy and hold broad-market index funds, like Vanguard, because the market will go up, regardless of whether it’s not doing well now. Personally, I’ve been putting a couple hundred dollars into Vanguard index funds every month since 2011 and have amassed a portfolio of over $120,000.
Scott Lieberman, Owner, Touchdown Money
UNDERSTAND THE FUNDAMENTALS AND NEVER STOP LEARNING
There’s so much to learn. I remember spending many sleepless nights soaking up everything I could learn about fundamental and technical analysis. There’s a lot to learn. Having studied the stock market for well over a decade, I find myself learning something new all the time.
I think the most important thing is to just start with the basics. Crawl before you can walk, and walk before you can run. Learn the fundamental concepts of supply and demand in the stock market. Get a good feel for how market trends are influenced by the balance between buyers and sellers. Start getting familiar with important patterns and what those patterns may indicate.
Don’t overwhelm yourself by biting off more than you can chew. Never stop learning. Thankfully, there are some truly exceptional free or inexpensive online courses and communities available that you can leverage today that I didn’t have available 15 years ago.
Justin Smith, CEO, Contractor+
AVOID MISCONCEPTIONS ABOUT STOCK VALUE
In the intricate world of stock trading, one common misconception that many beginners harbor is equating a significant drop in a stock’s price with its inherent value. Just because a security or stock has plummeted by 50% doesn’t automatically render it a bargain. It’s essential to recognize that a declining stock can, and often does, fall further.
Many novices are lured by once-popular stocks, believing that a reduced price point signals a prime buying opportunity. However, this can be a difficult trap. Waiting for a stock to reach a seemingly attractive price can result in further losses. It’s not uncommon for investors to witness their investments halve yet again. Always approach stock trends with a discerning eye, prioritizing comprehensive research over mere price points.
Shane McEvoy, MD, Flycast Media
MONITOR TECHNICAL INDICATORS FOR TRENDS
My tip is to always monitor technical indicators to spot trends. Most stock market traders use charts, trading volumes, and various technical indicators to decide when to buy or sell. They might look at “momentum”—how fast a price is climbing or falling—or try to catch new trends starting up or old ones winding down. There’s an old saying in the trading world: “The trend is your friend.”
If you’re just starting out with stocks, you can do the same to figure out a stock’s trajectory. A useful technique is to look at the 30-day simple moving average—that’s the average end-of-day price for the last 30 days—and compare it to the 10-day exponential moving average, which gives more importance to the most recent prices.
For example, if a stock’s price is higher than both its 30-day simple moving average and its 10-day exponential moving average, those who focus on technical trading generally take that as a sign of a very solid trend.
Thomas Franklin, CEO and Co-founder, Bitinvestor
HOLD ONTO STOCKS WITH GROWTH POTENTIAL
Don’t sell high unless you have a good reason to believe a stock has reached its ceiling. Many of the stocks you buy will become losers, with the precious few that grow into massive winners providing the bulk of your portfolio’s growth.
But a big part of the game is continuing to hold onto those stocks that will grow tenfold or more. The investors who sold Apple shares when they grew 10x from $0.10 to $1.00 in the 1980s, for example, would have missed out on the 1820x returns they would see today. You must watch your winners closely and keep up with their latest moves to determine whether they’ve reached their ceiling or have more growth potential.
Gillian Dewar, Chief Financial Officer, Crediful
MASTER READING TRENDING GRAPHS
As a former financial advisor turned business attorney, I think the best thing a beginner can do is learn how to read trending graphs in general. Knowing how to contextualize information you see on a graph is as important as the content of the graph itself.
For example, a common error beginners make is assuming an ascending peak will continue to ascend exponentially. In reality, an ascending trend will also have consistent “troughs,” or “lows.” Think of it less like a climbing line and more like a scalloped line that ascends upward.
Jonathan Feniak, General Counsel, LLC Attorney
UNDERSTAND THE INFLUENCE OF GLOBAL EVENTS
Stock market trends are largely driven by global geopolitical events and tensions. This area of study is known as macroeconomics, and any worthy investor will need to cultivate an awareness of this bigger picture if they are to understand the stock market. At the very least, it is wise to cultivate your network with connections to those who can provide reliable, well-informed updates on macroeconomics.
Understanding how the big picture of global money influences can and does directly affect market shares is foundational for all investors.
Gates Little, President and CEO, altLINE Sobanco
LEARN BY DOING AND COMPARING
Getting into the game is the best way to learn the stock market, but you must do so carefully. Invest in three different stocks in three different industries with a small amount of money, and then closely monitor their progress over three to six months.
While you are monitoring these stocks, read books that cover the history of the stock market. At the same time, read reputable publications that look at the stock market in real time. Then, compare the history with the present to find patterns and opportunities. After six months, further your investment and begin joining groups with other active investors.
Jason Vaught, Director of Content, SmashBrand
STAY DISCIPLINED AND KEEP A LONG-TERM VIEW
The basic key for beginner investors when analyzing stock-market trends is simple: Stay disciplined and keep a long-term view.
For investors of all experience levels, it’s difficult not to get caught up in headlines that elicit emotional responses, but the stock market is both emotionless and unforgiving. Just since the beginning of 2020, there have been many reasons not to invest in the market, including a pandemic, inflation at its highest level in 40 years, and geopolitical stress, yet broad returns have been positive over that timeframe.
When analyzing long-term stock-market trends, there is a consistent and simple conclusion: Diversified portfolios that invest across asset classes have a long track record of equipping investors of all experience levels for long-term success.
By investing frequently, staying invested, and blocking out the short-term noise that surrounds the stock market, investors should feel confident that they are making progress toward their financial goals.
Ben Vaske, Senior Investment Strategist, Orion
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