Page 454 - THE MARKET WHISPERER

450 PART 13 - How To Get Ready For Your First Day Of Trading

Here is What You Should Look For:

Will the Market Go Up or Down?
We learned that 60% of a stock’s movement will be dictated by market

direction. Therefore, the first thought I start with every trading day relates
to expected market direction. I will buy a larger quantity of shares with an
uptrend if I presume the market is trending up, and vice versa. We discover
the real market direction, unfortunately, only when trading hours have
ended, but as detailed below, there are several tools to help us predict the
direction in advance:

• Market behavior over previous days
Market trend is an important component of anticipating the direction.

What is the general market direction? If the market is trending up, there
is a feasible chance it will continue to do so. If it has trended up over three
consecutive days, it is reasonable to assume that on the fourth it may rest
or pullback. If it pulled back on the fourth and fifth days, it is reasonable to
assume it will resume its uptrend on the sixth day, and so on.

• Futures and the pre-market
About an hour before trading opens, we begin trying to anticipate

market direction via pre-market activity for futures, which unlike stocks
are traded 24/7. We can check the pre-market ES activity, or if you do not
have access to charts of futures, check the SPY pre-market chart which is
also traded during pre-market hours.

Several times each month, about one hour before trading, various
financial data are publicized such as the previous month’s inflation rates,
the status of unemployment, and so on. These data influence early trading
on futures, and you can see pre-market direction very clearly. Good news
will often influence the market open with a gap up. Even if there is no
news, you will be able to see the market trending one way or another. For
example, after a very strong day of highs closing with peaks, there is a good
chance the market will open lower than the highest high and pull back
for part of that high at least at the opening of trade. By contrast, after a
day of sharp lows, buyer hysteria and pressure may dictate an even lower
opening. As we learned, opening above or below the previous day’s close
is called a gap, and we know that gaps generally close on the same day they
occur, helping us evaluate market direction during trading.