Stock Market Tools For Trade Analysis

By on October 25, 2016
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Stock Market Tools That Will Improve Your Timing Skills

Today I want to discuss some basic stock market tools that will help you improve your market timing skills. In today’s day and age with so much information available traders have unlimited choices in selecting the tools needed for accurate market analysis.

Many traders fall into a trap by believing that complex tools will improve their analysis and timing skills. I want to present a few simple tools that I used during the last few weeks to help me analyze the U.S. stock market. My goal is to demonstrate how simple analysis tools can help you analyze the U.S. stock market like just as well as any professional trader can.

Start With Basic Visual Analysis

The first thing I would do is begin my analysis with simple basic visual analysis techniques. I would look at the trend to determine the general direction of the stock market first. Then I would examine how the market reacts to pullbacks.

In this particular case you can see that the trend is very strong and the pullbacks only last a few days. This would demonstrate to me that this market is very directional and is extremely bullish overall. You can see in this graph how quick each retracement bounces back in line with the trend. Notice I haven’t used any advanced tools or technical indicators yet.

stock market tools

The Pullback Or Corrections Are Very Short And Last Less Than One Week

Technical Chart Pattern Analysis

After I complete my visual analysis, I get a fairly good picture of what the trend is doing and I determine how strong the trend really is by measuring pullbacks and how fast they move back in line with the main trend. The next step is to see if any chart patterns apply to the market I’m analyzing.

This will help me determine if the market is currently in a range bound cycle or a trending cycle and it will give me further clues as to the future direction the market may be moving towards. In this particular example you can see how the stock market has been in a symmetrical triangle pattern for over the last several trading days. This tells me that the stock market is currently consolidating, because triangles are consolidation patterns that occur typically after strong trends.

Further, because the pattern is a continuation pattern it also gives me clues as to the future direction of the stock market. Since the trend prior to the consolidation period was strongly moving up the market should continue moving upwards after the consolidation period ends.

stock market tools

The Current Pattern Suggests More Upside After The Consolidation Period Completes

Apply Technical Studies

By now we know that the stock market was in a strong trend recently and we know that the stock market is now in a consolidation stage which is a temporary period of pause while the market generates strength to move forward. Since Symmetrical triangles are continuation patterns and the trend prior to the triangle was moving upwards we have a good idea of where the stock market is going to go after the triangle pattern completes.

The next step is to apply basic indicators to determine technically if the indicators confirm our visual analysis. I will apply the RSI which is a great stock market tool to determine overbought and oversold conditions as well as divergence analysis. You can see in this example how the RSI began bearish divergence over 2 weeks ago.

You should know that the RSI is not a sensitive indicator and does not provide these signals very frequently. So when I see these divergence signals I make sure to pay very close attention.

stock market tools

Change The Settings To 10 Bars For Better Short Term Reaction From The RSI Indicator

Things To Keep In Mind

There are many simple stock market tools that can help you analyze the market like a Pro. Start with visual analysis and work down to technical patterns and basic indicators. Always determine if the market is in a congestion range bound cycle or a trend cycle and then see how overbought and oversold the market is. Apply divergence analysis at critical turning points and monitor the fundamentals.

And for more on this topic, please go to: Identifying High Probability Breakout Stocks and Critical Stock Analysis Tools You Need To Know About

Wishing you the best,

By Roger Scott
Senior Trainer
Market Geeks

 

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