Today is day 2 of the 10 days to master part-time swing trading challenge. On the first day you reviewed previous articles to give you a good background on what it is we do.
Today, you will analyze the market.
The Concept: Analyze the Market
I use a top down approach to trading.
The first thing I do, before I even think about the stocks and setups I’d like to trade, is execute a full market analysis. This is the opposite of what most traders do. Most traders start with stocks, scans and setups, and completely ignore the overall market.
This is a fatal flaw, and it’s why so many traders fail.
They find a great setup, but don’t understand that that setup might not work well under current market conditions.
They find a great stock, but don’t realize that no matter how strong that stock is, most can not out maneuver the overall market trend.
How to Analyze the Market
Market analysis doesn’t have to be all that complicated. Just answer the following questions.
- What is the long term trend in the market?
- What is the intermediate trend in the market?
- What is the near term trend in the market (this most impacts your trading)?
- Are their any hidden underlying factors not showing up in the trend?
- Which market index is leading the market?
The answer to these 5 questions will help guide the stocks and setups you end up trading. You will place most of your trades in the direction of the prevailing market trend, using setups that work best in the current market.
Watch this video for an example of how I analyze the market, then move on to the day 2 exercise.
The Day 2 Exercise
Now that you’ve watched the video and understand how to analyze the current market, practice by analyzing past markets.
- Pick specific dates going back 2 years on the SPY chart.
- Answer each of the 5 questions for analyzing the market
- Now based on your answers, think about the types of stocks, strategies and setups you should have traded during that period. If you can’t answer this question don’t worry. By the end of the 9 day challenge, you’ll have a good understanding of stock picking and setups.
Day 1: Getting Started
Swing Trade Service
This swing trading service is great for those that work and can’t monitor the computer all day. We have in-depth nightly reports on the gameplan for the day/week and all stock picks that I trade will be alerted and emailed to you.