Today I’m going to explain how I can always make sure I’m trading with the market. And you can do it on nearly any platform for free — no special tools required.
When I trade, I’m always looking to trade “with” the market. What I mean by this is that I prefer to trade in the same direction as the general market. Following the trend, as they say.
It just makes your life so much easier.
Imagine you’re about to paddle on a river, would you start downstream and try to paddle your way up? No way!
Even someone who’s never paddled a boat knows that it’s a lot easier to “go with the flow” than to try and paddle against a raging river.
It’s the same with the market. So in today’s video, I’m telling you exactly how to set up your chart to make sure you’re always trading in the direction of the market — plus 3 picture perfect trending stocks to look at.
How To Find The Trend
These are the 3 indexes I use to gauge the market’s direction — as I write this, they are all technically bullish:
- SPY – S&P 500
- QQQ – NASDAQ
- DIA – Dow Jones Industrial Average
To start using this method, you’re going to open up your favorite trading platform. You can even do it for free on some places like Yahoo Finance.
Set up a 6 month chart. For me, I believe this gives me the best time frame.
Next, add 3 simple moving averages (SMAs):
- 20 day SMA
- 50 day SMA
- 200 day SMA
Finally, you look at the 3 tickers I mentioned above and follow these rules:
- If a ticker above all 3 moving averages, that index is firmly bullish.
- If a ticker below all 3 moving averages, that index is firmly bearish.
- If it’s anything else, it’s trapped in between.
And if all 3 indexes are above or below the 3 moving averages, that’s a very strong sign of the overall market trend.
One other little piece of advice. And this one is a little more advanced, but I think you’re ready to hear it:
If you see the price trend weakening, that could be a sign that the stock is losing momentum and could be about to break its bullish trend.
I’ll give you this visual so you can understand what I mean:
Notice how in the chart above, between the two yellow arrows, the price action (the teal/yellow lines) never went below the green 20 day trendline?
Right at the end, where I put the red arrow, you can see the price starts dipping below the green trendline.
That tells me that the market is losing steam and could be about to have a downturn.
Trading With The Broad Market
I believe in trading a market-driven strategy that is in line with the direction of the broad market.
If the market was bearish, we wouldn’t want to be bullish or long on stocks…
Because even though a trade “might” work out, it’s less likely since it’s working against the general direction of the market.
Bonus tip #1:
You aren’t limited to just looking at the indexes I mentioned. You can also look at individual stocks to find out what their trend is.
Bonus tip #2:
Within those indexes, sometimes you’ll find, for example, a tech stock that is more bullish than the QQQ. That’s a great starting point for finding stocks that are extremely bullish.
Trade well,
Jack Carter
Jack Carter Trading
