Critical Stock Analysis Tools You Need To Know About

These Stock Analysis Tools Will Improve Your Trading Performance

One of the most frequently asked questions I receive from beginners is inquiries about stock analysis tools and questions about which tools and settings I recommend. After answering about 300 similar questions I decided to put this short tutorial together so that traders can see which tools they should be using and which they should avoid using.

This is a list of my favorite stock analysis tools for different market conditions. Keep in mind the best tool for trending markets is probably the worst tool for choppy markets and the best tool for choppy market is probably the worst tool for trending markets. So before you decide to use these stock analysis tools,  make sure you first figure out if the market is trending or range bound.

The Best Stock Analysis Tools For Trending Markets

Relative Strength Analysis

Relative strength is not an indicator but a comparison between two stocks that are in the same industry group. When one stock is trending strongly, you compare the trend to other stocks in the same industry group and see how strong their trend compares to the other stocks in the same industry group.

Typically, you will find one particular stock that outperforms all other stocks in the industry and leads the sector. The Relative strength comparison works especially well with ETF’s because they represent a wider range of stocks than one individual company. You can see in this particular example how the SPY outperforms the QQQ. This would suggest that the currently rally is broad based and not focused or centered on the technology sector.  The SPY is up over 27% while the QQQ is up only about 19%.

stock analysis tools

It’s Best To Analyze Relative Strength On One Chart Similar To This Example

Where To Find Different Sectors

Back in the 90’s when I started trading there was no internet available. I had to go to the newsstand every night to get the next day’s Investor’s Business Daily newspaper which would divide stocks into sectors and provide a weekly highlight of each sector. I used to cut out the sections so I would know which stocks were in each sector. Times have changed and there are hundreds of places where you can get sector breakdowns.

I would suggest or Yahoo financial as two good starting places. The more specific you can breakdown the sectors and the stocks or ETF’s that make up the sectors the easier it will be to choose stocks or ETF’s that have the highest correlation to the other stock or ETF.  You want to find markets that are closely related so that you can truly see which one is stronger or weaker.

Relative strength works best when markets are trending, similarly to how the stock market is behaving at this time. I highly recommend you begin analyzing strength and weakness with simple relative strength visual analysis.

52 Week High / Low

Another very important tool that many stock traders ignore is the 52 week high / low number. This figure is a simple measure of stocks that are making one year price highs and lows. This analysis tool doesn’t promise much and doesn’t look as cool as some advanced indicators.

However I can assure you more professional traders analyze the 52 week high / low number than any other technical indicator. When markets are range bound and lack any significant trend the 52 week high / low number won’t be of much use. You will typically see a handful of stocks making highs and lows each day. However, when markets begin trending the numbers begin shifting very quickly one way or another.

Once a trend begins the ratio will show a strong bias in one direction and as the trend continues the ratio will get stronger and stronger. By monitoring this indicator on a daily basis you will start developing a feel for the momentum that’s moving the market and will start noticing patterns when trends are beginning or coming to an end. Today’s numbers show that 451 U.S. stocks are making 52 week high prices and only about 15 stocks are making 52 week lows.

stock analysis tools

You Can Find The 52 Week High / Low List By Doing A Simple Google Search

Apply 52 Week High / Low To Individual Sectors

Another way I use the 1 year high or low number is to analyze individual sectors to see how many stocks in that sector are making 1 year high or lows.  If there is a specific sector that’s trending strongly I will typically see how many stocks are breaking out of the 52 week high price and 52 week low price, this will help me determine the type of potential the stock has.

Things To Keep In Mind

Some of the best stock analysis tools are not actual indicators that are derived from mathematical formulas. Using actual price to help determine market price is like looking at market action without any filters. Most technical indicators are filters that distort what happens to actual price to some degree. Using relative strength to determine sector strength and individual stock strength can provide valuable clues to future performance.

Similarly, 52 week high / low ratio is one of the best ways to analyze cumulative market strength and weakness as well as individual sectors and stocks.  I promise if you monitor this indicator on a daily basis for a few months you will start developing a “natural” feel for the stock market ups and downs. For more on this topic, please go to: Identifying High Probability Breakout Stocks and Great Stock Market Tools For Trade Analysis

Wishing you the best,

Roger Scott
Senior Trainer
Market Geeks