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The last few years saw quite a bit of volatility in the stock markets. And while some enjoyed amazing gains because of rising stock prices, others failed to predict the future price and suffered losses. And with major global events continuing, only those with a keen understanding of how to identify the right individual stocks will be able to enjoy success.

Finding the right stocks to invest in is a key part of success in your financial strategy. But while there are thousands of experts claiming to know the secret to discovering the next winner in the stock market, figuring out whose advice to follow can be tricky.

In fact, the only way to have more confidence about the stock picks you make is to learn how to recognize the right stocks, identifying the key signs that can help you predict which stocks are going to go up and down. But how can you learn to read the financial market and understand the direction that the current prices of stocks will head? And what can you learn from the price history when trying to make more informed decisions?

Let's explore these and other important questions below.

Can You Predict Stock Prices?

Before we can get into the more technical aspects of the price movements in the market, it's important to answer the primary question - can you reliably predict future price trends in the first place? After all, while it's relatively simple to see why certain stocks rise and fall in retrospect, using the same principles to make stock market predictions doesn't always pan out.

Well, the most important thing to understand is that even if some would like you to believe otherwise, not even machine learning can guarantee the accuracy of future share prices with any reliability. In fact, despite advances in technology and impressive models, the basic principles of supply and demand are just a fraction of the infinite amount of factors that can come into play.

Some people have a much better track record than others. And using the right clues to make decisions while simultaneously weighing your risk tolerance for any given option can give you a much better chance of success.

It's also important to understand that success can mean different things. For day traders, success is defined by making a short-term profit because of the changes in a stock's price. However, for those investing in the long-term, the indicators of a worthwhile stock might be completely different.

But to have a good chance of succeeding consistently, you must have a solid understanding of the factors that can impact a stock's price increasing or decreasing.

Reasons a Stock Might Go Up

There are quite a few signs that could be pointing to a stock price increase. Even though these signs are by no means definite, they can serve as an indication that the market price of a share might increase in the upcoming time period.

Volume

One of the biggest indicators of how a stock is going to perform in the future is the volume of trades. When a stock surges in volume, that, at the very least, means some type of interest increase is happening, and that can often correlate with events that will positively impact the future price.

However, to make the most accurate predictions about whether a stock's price will increase, it's important to understand volume and use it the right way.

Taking volume alone might not be enough to make a confident decision about what's going to happen with a stock. but at the same time, it can be a very powerful confirmation of a future breakout, especially if you already have other indicators that are telling you a stock is poised to head in an upward direction.

You can also use volume to decide between a few stocks that are showing promise. If you see a stock price movement that could indicate a surge, the volume of trades for that stock can tell you that there's significant interest in the stock and allow you to confirm that it's not a false rally.

At the same time, trading volume can be a great sign if the surging price is about to come to an end. If the volume is decreasing, the price trend may be slowly coming to an end and could even be reversing, which is something you will need to consider before committing.

Moving Averages

Moving averages are an excellent way to see a clearer picture of how a stock is performing. It's especially useful when trying to cut through the noise and short-term volatility of a stock and identify the underlying trends in the price history that will give more insights over a longer time period.

A moving average is basically a way to create a smoother and more even view of a stock's price over time. It takes a time period, such as 10 days, 30 days, or even 200 days or more, and uses a moving average of that period to provide an average price at any given time.

So, for instance, you could look at the data from the last 200 days and see how the 200-day average looked, without having to deal with distractions in the form of short-term fluctuations that might not be indicative of anything relevant.

At the same time, since moving averages are much smoother and less volatile than actual price changes, the trends you do notice tend to carry more weight. In other words, if you do spot a trend in the moving averages, that can give you more confidence in believing that some type of change is taking place, providing more clarity on the best course of action in the situation.

A great way to use moving averages is to take a shorter and longer moving average (say, 10-day and 100-day), and see how they correlate. That can help you identify if the short-term trends are actually a sign of a changing tide or if the previous trend of growth is continuing.

Volatility

The term volatility typically has negative connotations because it comes with a lot of uncertainty and can be very costly to investors and the economy in general. However, for the savvy trader who is able to recognize the underlying reasons for the volatility and predict its outcomes, it can also be a golden opportunity for picking stocks that are poised for a rapid rise in value.

In fact, when the markets are relatively flat and nothing of significance is taking place, finding stocks to invest in or predicting the ones that will rise can be much more difficult.

But in order to make sense of market or stock volatility and use it to your advantage, it's crucial to understand what those fluctuations actually mean in the context you are looking at.

One of the key traits of stocks that are more volatile by nature is the number of shares available for trading at any given time. For example, S&P 500 stocks can be considered "large-cap" stocks, which means that they have millions of shares available at any given time.

To make stocks that large more volatile, one would need to buy or sell a significant percentage of the available shares, which is not easy to do and is usually reserved for the large players. Because of that, volatility is typically lower, and large-cap stocks will rarely fluctuate by more than a few dollars.

Meanwhile, on the other end of the spectrum, you have the "low float" stocks, which means that there are relatively few shares available for trading. In these instances, the supply of the available shares is much lower and that exposes the stock to more volatility in case of increased demand.

Typically, when dealing with low float stocks, you will work with companies that are still in the early stages and might not even be profitable yet. Those who manage to recognize the growth potential will try to act fast and get as many shares for a price as low as possible. And since there aren't that many shares to begin with, that can cause a rapid increase in the stock price.

By tracking the volatility of low float stocks, you can potentially recognize a stock that is seeing a lot of activity and jump on the trend, which can sometimes result in incredible returns.

Identify When a Stock Has Bottomed

The single best time to invest in a stock is when it bottoms out and reaches the lowest price it is going to have. That's where the saying 'buy low, sell high' comes from, and why it has become the ultimate cliché in the finance world.

The tricky part, however, is accurately predicting not just that the stock won't plummet anymore but that it will actually bounce back at all.

When a stock is in free fall, that means most investors have jumped ship and decided the stock is not worth the risk, with many taking significant losses just to get out of their position with as little damage as possible. And that means that there will always be significant risks when investing in stocks that are falling.

The good news is that if you know what to look for, you can mitigate many of the risks and get incredible bargains on stocks that are typically priced at a premium.

One good area to look at is the entire sector in which the company is operating. If there's a crisis that has put an entire industry in a downward cycle, you may want to hold off on purchasing even if the price is appealing, since the stocks might not bounce back for an extended time period.

However, if a stock is plummeting because of reasons unrelated to its sector and you have reason to believe that the company will pull through, you may be able to get a good bargain and see the stock price bounce back relatively quickly.

The aforementioned volume of a stock is another good indicator when deciding if a stock has bottomed out. When the volume slows down, that means there aren't that many sellers left, which can indicate that the stock is about to start stabilizing and potentially rising again.

Finally, when tracking stocks that are falling, pay very close attention to the public perception and the news surrounding it. Most investors typically overreact to the news, which can cause volatility. Still, over time, the true value of the stock wins out against any trends or media hype around a topic that might have influenced it before.

Bottom Line

The ultimate goal of all investors is to find stocks that are significantly undervalued and are about to take off. But since every single investor can't be successful, achieving the goals you set out usually comes down to being able to manage risks and work with as much information as possible when making decisions.

With the tips listed above, you should be able to find individual stocks that show good promise to increase in value. You use measures like the trading volume and moving averages, as well as various economic indicators, to make confident decisions that will pan out more often than not.