I have received a handful of questions about how I prepare for the trading day. Over the years, I have developed a kind of top-down approach to market analysis, starting with a big picture overview of the indexes, looking at world equity markets (skipped that in the video), commodities, currencies and interest rates, then drilling down into individual sectors and eventually into individual stocks. I do try to be very flexible during the day as there’s a delicate balance between having convictions on good setups and being overly stubborn (still working on really nailing that one down!), but the individual stocks I choose to focus on are a result of this process.
I also think it’s important to have a universe of stocks you know pretty well, but also to have some process that makes sure you know if stocks you don’t follow make big moves. We have a nightly scan I run for SMB traders, but there are many ways you can accomplish the same thing. (I do think it’s important not to rely on a simply percentage change ranking though… you must have some way to adjust for the volatility of each stock.)
I think this video just scratches the surface, but I hope it gives you some ideas that you can incorporate into your own homework process. I don’t think there is any magic to the way I do this. What really matters is that you have a system and that you stick to your system every night without fail.
(Probably best to watch the video in full screen HD.)