Sunday, September 2, 2007

Stock Picks 101 - Market Watching Is Like Watching the Weather

Do you watch the stock market during the day? Would you like to hear a perspective you that can give you insight into how you can better understand whats going on in the market?

Perhaps youre one of those people with a good sense of what the weather will be like on any given day. Some people dont need the local weatherman. They look at the sky, feel the temperature, smell the air, listen to the wind, take into account the time of year, and do a fine job of predicting the weather for the day.

Lets take this example a bit further. If its a partly cloudy day, you can look up at the sky and predict when youll be in a sunny patch or a cloudy spot. Todays cloud patterns also might help you predict tomorrows weather.

All this is done in a quick, casual, relaxed, intuitive manner. It doesnt take a high powered computer and a formula intricate enough to please a rocket scientist to pull this off. It just takes some experience and the willingness to observe accurately. Then your brain naturally does the rest at a subconscious level and comes up with a weather prediction.

This is where it gets interesting: You can use the same kind of mindset to predict the stock market as the day progresses. Like the weather, the market behaves differently at different times of day. Like the weather, yesterdays market has an effect on todays behavior. The premise of swing trading stock, for example, is that there is observable price movement follow-through from one day to the next.

With a little practice, you can see the up and down wiggles of price during the day just as you can see cloud patterns play across a distant hillside. Some market days are gusty and others are calm. Some market days crackle with thunderstorms and others operate under a steady rain. Some days are humid and sunny and others have a bright, even light.

Im making analogies in the previous paragraph. Youll find yourself developing your own perceptual framework. Because we all have unique experiences, we all have unique perspectives. Youll need to experiment with the market-like weather perspective to see what kinds of patterns you perceive.

Just like with the weather, this predictive technique breaks down if you get overly analytical. This method of prediction works best if done casually, without any emotional baggage.

You can take your observations to the next level by logging your impressions and then going back later to check their accuracy. As you get better at this, you can even factor it into your market trading process. Just dont force it!

Enjoy watching the market as youd enjoy the weather and youll be surprised at the subtle patterns you start to pick up on.

As one of the Directors of Investing Systems Network, Doug Newberry consults on the development and usability of software for swing trading stock and portfolio management for investors in more than 70 countries.