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:
Broad market analysis through the major indices such as the S&P 500, Dow Industrials, NASDAQ and NYSE Composite.
Sector analysis to identify the strongest and weakest groups within the broader market.
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 time frame is 2 days or 2 years. It
does not matter if it is a stock, market index or commodity. The
technical principles of support, resistance, trend, trading range and
other aspects can be applied to any chart. While this may sound easy,
technical analysis is by no means easy. Success requires serious study,
dedication and an open mind.
