Whether you invest in stocks, bonds, mutual funds, or options, you always do
so with the intent of making money. A key element in successful investing or
trading is the determination of the market's prevailing trend. Is it up? Is it
down? Or is the market involved in choppy sideways action? Making that
determination (for the short-, mid- and long-term) is every bit as important as
deciding what investments to buy and when to buy them.
To determine the prevailing market trend, you can monitor three main
indexes - the Dow Jones Industrials, the Standard and Poor's (S&P) 500, and
the NASDAQ Composite. Almost everyone who trades tracks one or more of these
indexes. Knowing their prevailing direction tells you what the majority of
market players are doing with their money.
Before placing your bets as an investor or trader, you should get clear
about the “primary trend”. We define it as a long-term trend that usually
last for several months. Knowing what the current primary trend is allows you
to heed one of the golden rules of trading, “Do not play against the market”.