Every investor has their routine. We all have our own system (however organized it may be) where we check out the same sites every day or watch the same shows to catch up on what happened that day. In this article, I am going to give you a rundown of my 5 steps to analyze the market everyday.
- Load up Telechart. Obviously this is only for those that have Telechart (which I highly recommend for any serious analyst), but your favorite charting service will do just fine.
- Start with what happened today. I start by grabbing the charts of the Dow, Nasdaq, and S&P 500. These are the main indexes that I, along with many, use as indicators to the market’s overall health. Look at both the price and volume action to see how active the professionals were and what the supply and demand levels appear to be.
- Move to the overall trend of the markets. With step 2, I focused on just the day’s action. Now, I broaden my view and take a look at a 6 month, daily chart. This gives me a lot of data to take a look at and I can draw some major and minor trends in the markets. Coupling this with my daily analysis, I can determine the best direction to invest in (long if the market is trending up or short if the trend is down). Also, I can look to see if there has been selling or buying in the background as an indication to future movement.
- View a weekly chart of each index. This step is incredibly useful if the market seems to be drifting like it has been lately. On a 6 month daily chart, the best trend we can establish is sideways, but when you look at a weekly chart, the trend could easily be seen. Here is an example:
Click to Enlarge
Click to Enlarge
- Establish expectations and/or possible scenarios. Once I have established the current trend and the daily activity of the Smart Money, I can anticipate certain future price action. This is less of “I think the market will go up tomorrow,” and more of “because we saw the market pull off the lows on elevated volume, if the market moves higher on increased volume I know that there was a lot of buying and should expect even higher prices.”
These are simply the steps I take to analyze the market each day. I encourage everyone to develop their own system and get in the habit of using it every day.
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