I've been taking a look at some stocks and I noticed that sometimes the bid rate begins to rise towards the ask price. While the ask price stays relatively the same. Is this indicative of an upward trend or any trend at all? Thanks!
Before answering your specific question, there is an underlying assumption to address first:
If you can notice any significant upwards movement in the bid price, which is still below the ask price, this indicates that there is a significant gap between the bid and the ask. There will always be some amount of spread between the bid and ask, by definition [or if they were equal, a new sale/purchase would occur]. A large gap between the bid price and the ask price probably indicates you are looking at a thinly traded / iliquid / 'small cap' / penny stock.
As an example for comparison, AAPL's current price [last trade made] is at the time of writing, is 205.19. It's bid price is 205.18. It's ask is 205.20. ie: The current bid price is only 1 penny below the last trade made, and the current ask price is only 1 penny above the last trade made. Why is this generally the case? An efficient marketplace will find an accurate price where the value of buying is the same as the value of not buying.
The fewer people there are who want to trade a particular stock, the less efficient that particular marketplace will be. If 10 people fully owned a company, and none were interested in selling, you could imagine that there would be a massive difference between what bid is being offered, vs what they would ask to sell. Likewise, small companies only have infrequent releases of information about them, so it would be hard for the few people interested in trading those companies to accurately value the stock. Therefore, the company you're thinking of, with a noticeable movement of the bid price with no transactions, is likely not very well traded.
So let's go back to your question: Does this movement in the bid price indicate a 'trend'? First, I'll state that many people would argue that searching for 'trends' in a stock price is meaningless - past performance does not guarantee future results. Second, consider that for an iliquid stock, a change in the offered price doesn't necessarily mean "the market" thinks the stock is worth more, it may literally be only a handful of people, or a single person. So is it a 'trend' - ie: does it indicate future performance? I have no idea, and I warn you that you likely have no idea either.
In short, I will conclude by saying that you seem at risk of grasping at 'trend' straws in order to make financial decisions. Do not do this. You may be seeing 'patterns' that do not really exist [humans are really good at seeing patterns everywhere]. Consider only investing in broad-based indexes or mutual funds, and avoid picking individual stocks, which is one of the riskiest forms of investing* possible.
*And if you make these decisions with too little knowledge, it may simply be another form of just gambling.
This occurrence is not indicative of anything other than someone placing a buy order that was higher than the current bid price but lower than the ask (price improvement inside the market).
Suppose the quote is $20.00 x $20.25 .
If nothing changes on the ask side and you place an order to buy X shares at $20.05 then the quote becomes $20.05 x $20.25
It can mean any or mix of the following
- The bid price is below the market average
- There are too few sellers, thus price is difficult to be met
- There are too few buyers
- It can be a any of the stock manipulation scheme
- There is a demand for the stock (uptrend)
Thus the probability of a real uptrend is only 20%. Will you bet on it without gathering further information?