What to watch, to "read the market"
Eric has listed some key things to watch, I agree with those & here are some more. If you're beginning level, don't try to take on too many of these at once, just be aware of them and start to work them in gradually as you study them and/or find them useful. Watching too much before you're ready for it, can actual distract you from good trading! But used appropriately, all of these are very good to watch:
- The charts for SPX, OEX, S&P Futures, Compx/NDX...plus the sectors (SOX.X, BKX.X, etc). Doing T.A. on the averages - trend, ADX, key support/resistance levels, daily chart price action analysis, etc. Gives you the framework.
- News/sentiment - Major pending news (e.g. economic #'s); sentiment; Put/Call ratio (best is Equity-only P/C ratio) all give you a heads-up on where the market is going. Fade prevailing 'CNBC' sentiment, is a reasonable bet; reflects 'the crowd'. The most important thing is to watch how the market REACTS to news. And, how/when is market reacting in relation to IMPENDING news. For example, does volatility contract 2 days in front of an FOMC, or two hours? Tells you a lot. Price action generally preceeds news.
- Watching the sectors. There are many different ways to divide the market into sectors, if you can identify and use 10-20 key sectors to watch the market, it's like going from B&W to color. I watch the key indices, and the leadership stocks within each sector. This speaks volumes about market internals. Watch sectors on a % basis, not a point basis. Which are up? Which down? That tells you a lot, as there are many relationships between the sectors, and between which sectors move first/last, etc. A book could be written about the usefulness of this one area, just for daytrading applications.
- S&P Futures. See prior posts on archive. The ultimate leading indicator intraday.
- Bond Futures. Often, the KEY thing to watch, like earlier this week. Bonds drag the stocks around by the nose, as much as a third of of the time (very powerful intermarket relationship).
- TRIN, great as a daytrading risk indicator. Per Pristine capital, they have the most useful teachings on this I've seen WRT daytrading stocks.
- TICK, great as a "strength" indicator. And for detecting reversals. Using TA (trendlines, prior high/lows, divergences) on the intraday TICk pattern is powerful stuff, it works.
- Advance/Decline, #new highs, lows. Breadth. Not as important if you watch the sectors, unless e.g. you trade the small caps. But, still good to develop a feel for.
- There are many more that don't come to mind right now; if you can really learn how to read the market, then you're ready to trade the S&P Futures, which is very difficult! The market is much harder to read than an individual issue. However, if you can read the market better, your trading will improve a lot. Think of it like you're in a small boat on the high seas. Well, reading the market is like reading the weather!
Getting in sync with the market takes several days. Once you are in tune with the market action, you will know it because your stock trading will reflect the fact that you are in the groove. It requires a lot of study, concentration, learning and effort to be able to do this well. Some will disagree, fine but if you've been there you know what I mean!
If you want to watch some pro's "read the market" real-time intraday, then go into the chatroom at www.intelligentspeculator.com, and watch them trade the spoos. You'll see what I mean about learning curve... and they make it look easy (it's not).
-Steve |
