Dear Trader,
I'll explain it another day.
But let me explain the Top Down approach and leave the Bottom Up for later.
Top Down means I start with macro-economic analysis. That means I look at the total economy and monetary policy to figure out where the stock market is going. That is the top of my analysis.
A lot of the time, it will give me ideas of what sectors will do well or poorly. For example, right now, I am bullish on energy but bearish on housing. OK, great.
But even though I have an idea of what sectors will do well, I still need to craft a trade that will make money from these ideas. So I do a couple of different things.
The first thing is to ask to see how various sectors are behaving technically. it's easy to find any chart service that will give you sector charts such as stockcharts.com or barchart.com.
I like to look at the chart to determine if my idea about the sector is correct or not.
You see, just because I have a great idea doesn't mean that the market thinks it is a great idea. We can only make money when the market thinks it's a great idea. My ideas may be great but I can't make any money until the market agrees with me.
What I do is I look to see if the sector is performing technically correct given my fundamentals. I then go a step further and I can make even more money if I can find the strongest stock in that sector.
So that's where I go to a chart service like barchart.com and drill down and look at the actual stocks inside that particular sector.
I then sort them by strongest to weakest. I start my analysis with the strongest stock.
There's a basic trader idea that goes back many years. Buy that which is stronger and sell that which is weaker.
So I look for the strongest stock in that sector. Why the strongest? Because it must mean that the fundamentals are stronger for that particular stock than for the stock that is the weakest in the sector.
A lot of people will say but isn't it too late and the answer is actually no. Simply following the principle of buying that which is stronger and selling that which is weakest actually is a classical trading strategy by itself.
So this technique of top down eventually gets me to specific and very strong stock trades.
I've just released a new training on exactly my process on how I do what I just described. I actually go through and start from the top and then go through the industries and the sectors to identify the stocks that I'm most interested in. The technique works for bull trades and bear trades That's important because we're currently in a bear market so we need to make money on the downside and this technique which shows stocks to sell.
Click here to get more information about the Wealthbuilder Insider where I put this training on. By the way, the Wealthbuilder Insider is the most extensive and comprehensive training on how to make money trading stocks in the world
Thanks!
Good option trading,
Good trading,
Courtney
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