Oftentimes people ask me how I am able to see so many charts and remember the details. Behind their question is a feeling that there is some secret formula that I apply to be able to do this. Actually there isn’t. It is just a simple process that I have developed over the years, that’s all. And it only entails simplifying everything to a point where only minimal steps are required to complete the job. This ends up making me look efficient.
What is this simple process you may ask? Well it comes down to streamlining the approach to the one most important thing in the charts, the one question that needs to be asked and answered at all times. And that is, what is the trend? Is it ranging or is it trending? That’s it. There isn’t anything else. I look at ALL charts from this angle only. Since the answer to this question is quite straight (most of the time) it doesn’t take too long to go thru many charts in a short period of time.
Inherent in this answer is the fact that you know what constitutes a trend and what a range is. Not too difficult there too. We have umpteen ways of deciding this and I look at just a couple. That way I keep the confusion down to a minimum. Also, I need to answer actually just one question- is it trending? Because if it is not, then it is ranging! After all, there are only two states in the market, isn’t it? So, to be effective and quick, all I need to have is my trend definitions down to pat!
For this, I have my training program students to thank. Having taught many students over the years has helped me get my basics right and this is really at the heart of it all. So you can imagine how pained I get when I see young TAs chase down every new thing in the marketplace, foregoing their basics.
Once you are able to decide on whether or not the stock is trended, then you can decide the kind of trade to take. You will, at most times, already have an opinion on the market direction (shaped by various things, including charts) and so it becomes an exercise of finding the relevant stocks that suit the expected market direction. This can be either trend following (longer duration plays) or mean reverting (shorter duration plays). After looking at many charts it becomes easy to segregate the list into the two types of trade plays.
This kind of segregation clears your mind of any unnecessary clutter and you know exactly what to look for in the next day or week- which group of stocks is getting validated by the market for that day or week. This makes stock selection easier and best of all, you pretty much remain aligned to the current trend.
So, there you see, it is not such a difficult job being efficient in the market- whether analysing or trading. A clear mind is what is required. And a good process is what can lead to a clear mind. Try it, you will love it!