How To Use The IBD To Calculate Market Direction

The first step in your stock market investing education should be to learn how to use the IBD to calculate market direction. In his book The Successful Investor, O'Neil lists this as step one to becoming a CANSLIM investor. Determining the overall general market direction is crucial because his research shows that three out of four stocks follow the trend. If the market is going up, there's a 75 percent chance your stock will too. And, the opposite happens if the market is going down then you've got a 75 percent chance it will go down. Because of this statistic, you are only going to want to invest in the stock market when the market is in an uptrend.

Fortunately, the IBD makes this process easy. The first thing that you can do is read the Big Picture column. It contains a nifty little feature called the Market Pulse. Each day the market pulse tells you the current market direction. Another thing I suggest is watching the IBD TV market wrap as it discusses what happened to the market indexes each day and also tells you if there is a change in the market direction. While the IBD TV video is free, you have to be a subscriber to either the paper or the electronic version known as eIBD to get the Big Picture column.

Really though, it's a good idea to learn how to analyze the market yourself and make your own determination. Look at the S&P 500, the Dow Jones Industrial Average, the NASDAQ and the New York Stock Exchange and make note of the price and volume action for each index on that day. What you are looking for is if the market went up or down on higher volume. These are your clues to getting a handle on whether the market is under buying or selling pressure.

Once you have decided whether today's action is an accumulation day or distribution day, then watch the IBD TV video to see if you were right. While there are some nuances you'll need to get a handle on like keeping track of distribution days, figuring out if the market is attempting a rally day or identifying follow through days, watching that video and reading the Big Picture column are all you need to learn what you need to know.