How To Analyze Stocks Using Technical Analysis

Simple Steps Anyone Can Master

Today I will show you a simple process so you can learn how to analyze stocks in a systematic way. I will show you some of the same steps that I teach my students and practice myself daily. This tutorial won’t include every step but it will give you a good idea of how to approach basic stock analysis the right way from the start.

One of the biggest pitfalls that beginners make is not looking at the big picture and only focusing strongly on certain pieces of the puzzle. Unfortunately, learning how to analyze stocks involves looking at several different pieces of the puzzle and putting them all together the right way.

Learning How To Analyze Stocks Begins With The Stock Index

If you ever read How To Make Money In Stocks by William O’Neil, then you probably know by now that stocks correlate to the Index about 70 percent of the time.  This means that stocks that have reasonably good volume tend to follow and mimic the Indices. All you have to do is take a look at a few popular stocks and you will see that for the most part they follow the index. This is not always the case but it happens enough of the times that you want to consider what the Indices are doing. If you are trading Technology stocks then you would monitor the NASDAQ and if you trade Blue chip stocks you would most likely keep your eye on the Dow Jones and the S&P 500 Index.

how to analyze stocks

Microsoft And S&P 500 Move Closely Together

One indicator I especially pay attention to is the 52 week high/low figures.  You can get a great idea of the current stock market climate by looking at how many stocks are making 1 year highs or lows. If you notice large percentage of stocks breaking above their yearly high the odds are the index is strongly trending and if you notice that most stocks are not breaking out of the 52 week high/low you can be assured the stock market is in a range bound cycle.

how to analyze stocks

Check The 52 Week High Low Numbers

Check For Scheduled Fundamental News

This step is often avoided by traders especially beginners. You have to force yourself to go through this step because not monitoring fundamental news is one of the biggest pitfalls beginners make. I don’t suggest you read the Wall Street Journal cover to cover, I’m suggesting you take a quick look to see if any fundamental news that can affect your stock is going to be released in the foreseeable future. There are several sources of news that are available at Market Geeks Resource page that provide daily schedules of news that is going to be released in the upcoming hours, days and weeks. Avoid trading particular stocks prior to earnings and other news that may cause random volatility to your position. This is one of the biggest reasons traders get stopped out of their positions prematurely.

how to analyze stocks

Check Fundamental News Daily Before The Opening Bell

Determine The Current Stock Market Cycle

Last few days I spent some time discussing market cycles and the important of knowing which cycle your stock is in. You need to know if the stock your trading is in a trending cycle or a range bound cycle. Many traders avoid looking at the market in this way and don’t match the right cycle to their trading strategy. Cycles typically alternate so always look at the previous cycle to give you clues in determining the stocks current cycle. Basic cycle analysis is a great way to begin learning how to analyze stock’s and other markets.

how to analyze stocks

Learn To Determine Current Market Cycle

Apply Technical Analysis Tools

Once you determine the current market cycle you can begin applying basic technical analysis tools to help you gain better understanding of the current market environment. For example if the stock is in a trending cycle you want to apply basic trending tools such as moving average indicators and trend-lines to determine if the stock is breaking out, retracing or beginning to reverse. You may want to see if the stock fits into any classic chart patterns to help you decide what phase of the cycle the stock is currently in.

how to analyze stocks

Use The Correct Indicator For The Job

Apply Entry And Exit Rules That Match The Stock

The final step is to apply the correct entry and exit strategy to the stock. If your analysis shows that the stock is in a strong momentum phase and the general stock market confirms this as well a breakout strategy with wide stop loss to take advantage of the volatility that comes with momentum would probably be the best strategy.

If on the other hand you notice that the stock is in a range bound trading pattern you may want to apply an oscillator to help measure divergence and overbought and oversold levels.

If you notice that a reversal pattern is underway you would want to look for Gaps and reversal entry patterns such as the Gap Tail method or other method that works well with this type of pattern.

Things To Keep In Mind

If you follow these steps you should have a better idea of the current market cycle and the current stock cycle as well. Always begin with the big picture and work down from there. Looking at stocks through a microscope is not something you want to do before you enter your position and while you’re in your position. You have to look at the big picture and following these steps will help you do just that.

For more information on this topic, please go to: Short Term Trading Indicators – Bollinger Bands As Trend Filter and Technical Trading Strategies – The Tail Gap Strategy Revisited

Wishing you the best,

By Roger Scott
Market Geeks