by Dheer Kothari

Created on: September 05, 2009   Last Updated: September 07, 2009

SEVEN SIGNALS OF A RISING STOCK PRICE

Spotting a trend at the nascent or incipient stage is the dream all of us chase as investors. Yet, the reality is that only a select few get it right at the right time. Most of us are guilty of bad timing when it comes to predicting the peaks and the troughs.

It is also true that within a trend - bullish or otherwise - there are exceptions, pitfalls or deviations which tend to mislead you. In the shorter term, there could be divergences from the primary trend. An understanding of trends and trendlines gives you the confidence to stick to your convictions and discover price patterns which herald an emerging trend or a trend reversal.

The focus of this article is on a rising stock price and how to determine whether it is sustainable over a reasonable period of time. Armed with this knowledge of trends, it becomes easier to decipher price patterns in a stock's chart.

ASCENDING TOPS- This is a very bullish indicator and refers to successive peaks in a stock's price chart with each peak higher than the preceding one.

VOLUME RATE OF CHANGE and PRICE RATE OF CHANGE- This is one of the most fundamental and time-tested patterns which signifies that a stock is bullish. If the rate of change is positive it means that volumes have grown over a given number of days. Ideally, the period chosen should be about a month so that the change is well-defined on the charts. Similarly, the rate of change in prices can be plotted to see if there is a positive change over a given number of days. Used in conjunction, the price and volume chart of a bullish stock would show a rising price line with a steady rise in volumes.

ACCUMULATION AND DISTRIBUTION LINE (A/D)- It is an important tool to pick a trend reversal. If the price of a security is moving downward but the A/D line is moving upward it indicates increased buying pressure and weakening seller strength. It is a momentum indicator that determines money flow. According to Marc Chaikin who created this tool, if a stock closes above its midpoint in a session it is a sign of accumulation. Alternatively if it closes below its midpoint, it signals distribution.

MONEY FLOW INDEX (MFI)- Another popular indicator developed by Marc Chaikin, it is based on the accumulation-distribution line and provides a useful trend confirmation. Its logic is simply that a rising stock price is accompanied by higher volumes and the closing price of the stock remaining in the upper half of its daily price range. A

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