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What is a Market Bottom?

Article Details
  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 08 August 2018
  • Copyright Protected:
    2003-2018
    Conjecture Corporation
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Market bottoms are the low point of a market trend that has been on the decline. Essentially, the market bottom is the point at which the downturn levels off after the period of decline, and shows signs of stabilizing. Many analysts see a market bottom as a good sign that the price level will shortly enter into a period of prosperity after the period of short term or long term decline.

There are no absolute signs that will always indicate that a market bottom is about to take place. However, there are a couple of general trends that can alert investors to the potential for the bottom of the market to be reached within a reasonable period of time. One trend has to do with investor sentiment. A great deal of pessimism exhibited by investors, analysts, and brokers can often foreshadow the overall market reaching a bottom level, where stocks traded on the market will remain for a period of time and then begin to climb once again.

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A second common trend that usually precedes a market bottom has to do with the trading level on the market. As trading begins to slow, the downward spiral of the market will also begin to slow somewhat. This low trading will often have the effect of keeping prices from falling any further, as attempts are made to motivate investors to engage in more trading. Slowly, this combination of relatively stable prices and lower trading will cause the direction of the market to slow, then pause, and finally reverse. The market bottom is achieved at the point that the market pauses, and just before trading begins to pick back up.

Correctly predicting a market bottom can be a great benefit to investors. Generally, choosing to buy stocks just as the market bottom is achieved means plenty of shares to acquire, and prices that will often be considered a bargain. As the market begins to recover and trading activity rises, the value of each acquired share is also likely to rise, resulting in a substantial profit.

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