Market Trend Analysis
“The Trend is Your Friend”

Stock or Index Trend Analysis is one of the most basic and important tools that you can use in Momentum Trading. Master this process and the key to trading Options profitably is in your hands. By the end of this page, you will have learnt a simple process of stock market technical analysis, and you should be able to identify whether both the market and a stock is inclining up, down, or sideways. Many times, you can eyeball the chart and get the idea, but it does help to have two or three objective measures.

Two Steps, Four Indicators
Stock and Index Trend Analysis Made Easy!

Trend Analysis You can do a really thorough trend analysis of both market (reflected in the indexes) and stock in two steps, using four simple indicators. Firstly, you need to identify the general trend of the market, using an index analysis, and then you find the trend of your chosen stock.

Step One: Market Trend Analysis
Find the direction of the general market

Your stock would have to be exceptional to be able to buck the momentum of the market! So, check out the Dow Jones (DJX), S&P 500 (SPX) and the Nasdaq (^IXIC) indices. Some stocks are contrarian, such as gold stocks. Often, when the general market dives, the US dollar follows suit, and traders buy precious metals for security. Other than that, most stocks will follow big market moves, either up to down.

When running a trend analysis of the market, I prefer to use the S&P 500 as a measure, because it is most representative of the general market. However, the Dow and Nasdaq also represent important psychological factors in the market direction.

You will need to look at these four indicators:

  • The balance of moving averages (e.g. using the 10ma and the 30ma) - shows the direction of the trend - up, down or sideways;
  • The Wilder's DMI (ADX) - shows the strength of the momentum
  • The RSI - shows when a reversal is imminent;
  • The Volatility Index (VIX) - shows when a reversal is imminent.

The best place to see these indicators is on Stockcharts, which is a free service. I have set up and bookmarked a template for myself, so that I can quickly view the position of any index or stock. If you join Stockcharts for a nominal monthly fee, you can save your portfolio for quick access to graphs which are updated automatically.

Market Trend Analysis

Moving Averages

Set up your graphing service to show the 10 day MA (Moving Average) and the 30 day EMA (Exponential Moving Average). You could use various combinations of MAs, such as 5 and 20, or 10 and 40, but 10/30 seems a good combination for swing traders.

  • If the 10 ma is ABOVE the 30 ema, then you have an uptrend. This simply means that over the last ten days, the stock has been trading higher than it has been trading on average over the last 30 days, and so is generally heading up. The further apart the trend lines are, the stronger the momentum.
  • If the 10 ma is BELOW the 30 ema, then you have a downtrend. This simply means that over the last ten days, the stock has been trading lower than it has been trading on average over the last 30 days, and so is generally heading down. The further apart the trend lines are, the stronger the momentum.

Wilder's DMI (ADX)

Shows the strength of a trend

  • If the ADX is above 30, the momentum is strong, and is likely to continue.
  • If the ADX is below 20, the momentum is starting to weaken.

Relative Strength Index (RSI)

Shows when a reversal is imminent

  • If the RSI is above 70, the market is generally thought to be overbought, and an upward trend is likely to turn downward soon. Be careful about entering a trade.
  • If the RSI is below 30, the market is generally thought to be oversold, and a downward trend is likely to turn upward soon. Be careful about entering trade.

Volatility Index (VIX)

Shows when a reversal is imminent (You will need to pull up a separate chart on Stockcharts - enter "$VIX" and have the RSI shown as an indicator)

The VIX is a measure of volatility in the market. Usually, it increases as the market decreases. Its usefulness is in showing when a trend reversal is about to take place. You need to look at the RSI of the VIX, and don't forget that what it shows about the VIX is opposite to what it reveals about a stock!

  • If the VIX RSI is above 70, the market has been in a downtrend and is likely to swing into an uptrend. This is confirmed if the VIX is about 10% above its 10 day moving average (ma).
  • If the VIX RSI is below 30, the market has been in a uptrend and is likely to swing into an downtrend. This is confirmed if the VIX is about 10% below its 10 day moving average (ma).

Having checked the direction of the general market, you may want to do the same for the Industry of the stock you are interested in. Apply these indicators to an Index that is specific the relevant industry. For example, for gold mining stocks, you may want to use the indicators on the AUX; for semiconductor stocks, you may want to look at the SOX.

TOP TIP: You can analyse up to 10 stocks per day by INO's Trend Analysis.
Enter your symbol, and they give you the trend, with a measure from 1-100 of its strength. Or, go to INO's Portfolio Page. Enter up to 10 stocks here, and get a daily email with trends. Wanting to find more stocks? INO's 'Top 50 Trending Stocks'
is free for 10 days, and then $8.95 per month. I use it, and regularly find excellent leads.)

Step Two: Stock Trend Analysis
Find the trend of the your chosen stock

Click Here to go to Part Two: How to run a Stock Trend Analysis



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  • On this page you will learn a simple process of market trend analysis and stock trend analysis. The main intention is to provide set ups for credit spread trades, but the technique applies to any form of stock, option or forex trading.

    Stock market technical analysis can get very complex, leading to errors or analysis paralysis.
    My philosophy: Keep It Simple!

    These simple steps will set you up to start a simple, safe, stress free and highly profitable options trading strategy which you can easily use to gain 10-15% or more on your portfolio each month!


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