Understanding Market and Stock Directional Investing

Market Direction and subsequent stock direction remains the single most important indicator for investors to be able to consistently profit and grow their portfolio.  For those of us who enjoy Put Selling or selling options of any kind, market direction is paramount. For other investors market and stock direction dictates the outcome of your investment.

The whole purpose of investing is to grow your portfolio. To know when to enter a trade and when to consider NOT entering can mean the difference between a profit and a loss. Continual losses will hinder the compounding of a portfolio. Large losses can severely damage a portfolio for years. To understand better how to decide when to enter and exit trades there are many different techniques that can be used. In this article I look at one of the more basic methods I use to mushroom my portfolio and increase my trading profits quickly, not just through the profits earned but by reducing the number of losing trades I enter. This basic and simple method allows me to avoid committing my capital at the wrong moment, whether it is selling covered calls just before a stock rises and risking the loss of my stock through exercise, or selling puts just as the stock is about to collapse.

Since the majority of stocks follow the overall market direction, understanding how to look at market direction assists in understanding how to look at individual stocks. In this article I look at both the market direction and then applying the same simple and basic methods to two stocks as examples. I then explain how I apply the same method to intraday market direction which assists everything from my Spy Put Options trades to timing which strategy to apply to what stock to determining what the market direction will do the following day.

This article is based around a question I received this morning from a FullyInformed Member. Her question although pertaining to the market direction also pertains to understanding stock directional trading. Here is her question.

Reader Question:

I’ve read your market direction outlook for today (Jan 3 outlook) and agree that waiting for a bit of a pullback is prudent, though the trend certainly still seems up. Is there any criteria you use for measuring how much of a pullback you’d wait for to jump in? I know it’s certainly not advisable to try (or even possible) to catch a bottom, but I sometimes feel I jump the gun when I’m looking for something to happen. I’d rather learn to listen to the market to tell me what it can, as you have shown with your indicators. (Your help in this area is much appreciated!)

So, are there particular favorite indicators which you prefer that you would use intraday to help you in determining that a pullback has occurred and that’s it’s over and now resuming the trend up? Or would you instead rather see at the end of the day what your regular set of indicators (used in your market direction articles) tell about what the close holds?

It does not matter whether your strategy is designed to benefit from up, down or sideways movement. It does not matter whether you are trading in stocks, ETFs, or commodities. Understanding market and stock directional trading puts the odds in your favor that your trade will end profitably and not with a loss.

This FullyInformed Members Strategy Article can be directly accessed through this link or Members can login here. Non-members can join here. This strategy article is 14 pages in length containing 4570 words. It contains a number of charts and may take a few moments to load depending on the speed of your connection.