Do you know where we are in the stock market right now? Is it cheap or is it expensive? We are near the all time high. What is the next? A stock market crash? A correction, or a consolidation? Where do we find answers to all those questions?
As an investor you need to read the map. You need to identify facts and not make any assumptions or any forecast. You can`t belive or “feel like” in the stock market. That`s why traders trade what they see, not what they think.
It is dangerous if investors and traders begin to assume. Predicting the market is a difficult, if not impossible, game. Reading the markets is an empirical science. Investors and traders with success in the markets requires serious study and analysis that is fraught with success and failures.
Failure is painful and should be looked upon as learning experiences. Technical analysis is an art form and the eye grows keener with practice. Success is the trading market is a great thing, but don`t get to smug about it. Study both successes and failures with an eye to the future.
It`s a great thing to identify the primary trend and then catch the big moves. Two thing drives the market: the fact and the psychology. The market tends to go much longer than expected (what we see right now) and much deeper as expected.
You have to understand that the markets are influenced by emotions and prone to over-react both up and down. Therefore; you have to concentrate on identification and following: identify the trend and then follow the trend and the trend is in place until proved otherwise.
This is when the trend will end, it is proved otherwise.
I will do it as easy as possible and show you a basic method of how you can identify the trend. This can be a good starting point for you to develop analysis guidelines that you are comfortable with and understand.
The first step to identify the primary trend is to identify the individual trend of the Dow Jones Industrial average (DJIA) and Dow Jones Transportation Average (DJTA), individually. Use peak and trough analysis in order to ascertain the identity of the trend.
An Uptrend is defined by prices that form a series of rising peaks and rising troughs. In the chart you will then see higher highs and higher lows.
A Downtrend is defined by prices that form a series of declining peaks and declining troughs. In the chart you will then see lower highs and lower lows.
Once the trend has been identified, it is assumed valid until proved otherwise. A downtrend is considered valid until a higher low forms, and the ensuing advance off of the higher low surpasses the previous reaction high.
Below is a chart of the Dow Jones Transportation Average. I printed out the chart yesterday june 26, 2014. As you can see, in 2012 there was a consolidation period, and in 2013, and so far in 2014, it is all in an uptrend, but where is the top? Where is the peak?
After a peak, a series of lower lows and lower highs will be formed to make a downtrend. In the downtrend we will then see a bounce back and have a secondary rally. After a downtrend, you have to look for high volume days, like high volume washout days. High volume days signal that a possible change is looming. Alone, a high volume washout day is not a buy signal, but rather an indication to monitor price action a little closer.
If you see a higher low later on, it is too early to call it a change in the trend. The change of a trend is not confirmed until the previous reaction high is surpassed. It need to cross the trend line to call it a change in the trend.
An uptrend is considered in place until a lower low forms and the ensuing decline exceeds the previous low. You can see the uptrend in the Dow Jones Industrial average chart below. You can see a series of higher highs, and higher lows.
Bears jumping in on the top can sit on top for a long time with more all-time-highs to come, but professional traders and fund managers do this to make an insurance for their portfolio, because it is impossible to predict a new change in the trend.
All you have to do is to catch the big moves. To do this, use weekly charts to establish reaction highs and lows. But weekly charts may not portray the details you need. One possible solution is to apply a short moving average to the price plot. A 5-day moving average could be applied to smooth the price series and still allow for the details.
What I am talking about is not a science. It is just ment to offer insights and guidelines from which to begin careful study of the market movements and price action. Look at the charts, read the map and catch the big moves.
09:55 a.m EST Revised UoM Consumer Sentiment
09:55 a.m EST Revised UoM Inflation Expectations
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