Today I will reveal a simple process so you can learn to analyze stocks in a systematic way. I will show you some of the same steps that I educate my students and practice myself daily. This tutorial won't include every step but it will provide you with a good idea of how to approach basic stock analysis the right way from the beginning.
One of the biggest pitfalls that beginners make just isn't looking at the big picture in support of focusing strongly on certain bits of the puzzle. Unfortunately, learning how to analyze stocks involves investigating several different pieces of this puzzle and putting them all together the correct way.
If you ever read Steps to make Money In Stocks by Bill O'Neil, then you probably know chances are that stocks correlate to this Index about 70 percent of times. This means that stocks that have reasonably good volume tend to follow and mimic the Indices. All you want to do is take a look with a few popular stocks and you will see that for the most part these people follow the index. This is not always the truth but it happens enough of the times you want to consider what the Indices are generally doing. If you are trading Technology stocks then you definitely would monitor the NASDAQ if you trade Blue chip stocks you'd most likely keep your eye about the Dow Jones and the S&P 500 Directory.
One indicator I especially look closely at is the 52 week high/low results. You can get a strategy of the current stock market climate by investigating how many stocks are making one year highs or lows. If you notice large percentage of stocks breaking above their yearly high the chances are the index is strongly trending if you notice that most stocks are not breaking from the 52 week high/low you can be assured the stock market is a range bound cycle.
This is often avoided by traders especially beginners. You have to force yourself to pass through this step because not monitoring fundamental news is among the biggest pitfalls beginners make. I don't suggest you look at Wall Street Journal cover to repay, I'm suggesting you take a fast look to see if any fundamental news that could affect your stock will be released in the foreseeable potential. There are several sources of news that you can get at Market Geeks Resource page that provide daily schedules of news that will be released in the forthcoming hours, days and weeks. Avoid trading particular stocks before earnings and other news that may cause random volatility to your position. This is one of the largest reasons traders get stopped from their positions prematurely.
Once you determine the current market cycle begin applying basic technical analysis tools to help you gain better understanding of the current market environment. For example if the stock is a trending cycle you intend to apply basic trending tools for instance moving average indicators and trend lines to find out if the stock is smashing out, retracing or beginning to reverse. You may want to see if your stock fits into any classic chart patterns to help you decide what phase of the cycle the stock is in.
Last 7 days I spent some time discussing market cycles plus the important of knowing which cycle your stock is. You need to know if your stock your trading is in a very trending cycle or a range bound cycle. Many traders avoid looking at the market that way and don't match the right cycle to their trading strategy. Cycles typically alternate so always think about the previous cycle to give you clues in determining the stock’s present cycle. Basic cycle analysis is a powerful way to begin learning how to analyze stocks along with markets.
The final step is always to apply the correct entry and exit technique to the stock. If your analysis shows the stock is in a strong momentum phase plus the general stock market confirms this likewise a breakout strategy with wide stop loss to leverage the volatility that comes with momentum could possibly be the best strategy.
If alternatively you notice that the stock is a range bound trading pattern you may want to apply an oscillator to assist measure divergence and overbought and oversold levels.
If you notice that some sort of reversal pattern is underway you would like to look for Gaps and reversal entry patterns such as the Gap Tail method or different method that works well with such a pattern.
If you follow these steps you need to have a better idea of the current market cycle and the current stock cycle likewise. Always begin with the big picture and work down from there. Looking at stocks through some sort of microscope is not something for you to do before you enter your position although you’re in your position. You should look at the big image and following these steps will assist you to do just that.