General Steps to Technical Evaluation

Many technicians employ a top-down approach that begins with broad-based macro analysis. The larger parts are then broken down to base the final step on a more focused/micro perspective. Such an analysis might involve three steps:

  1. Broad market analysis through the major indices such as the S&P 500, Dow Industrials, NASDAQ and NYSE Composite.
  2. Sector analysis to identify the strongest and weakest groups within the broader market.
  3. Individual stock analysis to identify the strongest and weakest stocks within select groups.

The beauty of technical analysis lies in its versatility. Because the principles of technical analysis are universally applicable, each of the analysis steps above can be performed using the same theoretical background. You don’t need an economics degree to analyze a market index chart. You don’t need to be a CPA to analyze a stock chart. Charts are charts. It does not matter if the timeframe is 2 days or 2 years. It does not matter whether you are looking at a stock, market index or commodity. The technical principles of support, resistance, trend, trading range and other aspects can be applied to any chart. As simple as this may sound, technical analysis is far from easy. Success requires serious study, dedication, and an open mind.

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