Chapter 13. Using Fundamental and Technical Analyses for Optimum Strategy
In This Chapter
Seeing the big picture
Identifying the phases of the market
Trading with the dominant trend
Developing strategies for each phase of the market
Knowing the current state of the economy can help you improve your trading results. However, knowing the current state of the market is crucial, because you obviously want to buy stocks in a bull market and sell them, or short them, in a bear market. Besides the obvious, you also want a strategy for trading stocks during market transitions and consolidation phases.
As a result, you need a method for identifying and categorizing the differing phases of bull and bear markets. We recommend using the six phases in the list that follows. Doing so enables you to adjust your trading strategies for each phase of the market, regardless of whether you're trading stocks, bonds, indexes, futures, or options. The six phases of the market are
Bullish transition: The market is transitioning from a bear market to a bull market.
Bull market: A persistent rising trend in the market.
Bullish pullback: A bull market in the midst of a pullback.
Bearish transition: The market is transitioning from a bull market to a bear market.
Bear market: A persistent downtrend.
Bearish pullback: A bear market in the midst of a consolidation.
This chapter shows you how to identify these phases of the market using the techniques of fundamental and technical analyses that we describe throughout this ...
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