There’s a great old saying on Wall Street: The trend is your friend. That’s especially true if you want to trade in the options market, where you have a limited amount of time for a trade to play out.
Yet many investors, focused on a company’s fundamentals, don’t think about trends at all. It’s a critical skill for any investor—but it’s crucial for shorter and more leveraged trades like those in the options market.
That’s why it’s important to consider all the factors that can cause a company’s share price to rise or fall. For longer periods, the fundamentals definitely matter. But for shorter periods, how a company’s shares have been trading recently can matter as well. That’s why it’s crucial to understand both, and how to identify key trends to know when a stock is going to continue going up, reverse and go down, or even just trade sideways.