The Big Picture: How to Decipher What the Market Is Saying
To be a successful investor, you can't just buy a good stock. You have to buy the very best stocks at the very best time.
And it's not enough for you to simply study the stock itself, you also need to analyze the market conditions in which it is trading.
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Five decades of historical studies on past market cycles show that three out of four stocks decline when the general market averages correct. That's why market direction is one of the several critical factors in making money in stocks. How do you tell which way the market is headed?
You really don't need a crystal ball. The key is learning to decipher the day-to-day market action—in other words, what the market's doing right now. Successful investing isn't about following pundits' predictions or analysts' estimates or going by how you feel. It is about studying the market itself.
There are a few key market indicators to look for that provide a trustworthy lens into how the market is behaving overall. In this article, we'll focus on the main indicators—the Nasdaq composite, S&P 500 and Dow Jones industrials. We'll illustrate how to use their daily price and volume activity to interpret today's market climate.
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