Finding a Stock
Bottom Up Approach
This means that you are searching for a stock but you're
going to start at the bottom of the market. Usually
these are the stocks you either stumble on or are what are
referred to as story stocks. So you're
going to look at the stock chart
first, then the sector that the stock is in and finally the broad
market environment. Is it trending up or down? Your
thinking here is more of the stock acting independently of
the market direction and not so tied to market economics.
1. Having found a
reasonable chart to analyze more
- Trending up, down or
- Is it at a price support or
- Is there a reversal or
continuation pattern developed? If so, is it a mature
pattern? How long has it been in place? Does your chart fit
2. How is the sector of
that stock performing? Look at the chart on a daily and
weekly period. Is your stock and its sector moving in the
3. What about the broad
markets? The Dow, the S&P, the NASDAQ...are they
trending in the same direction as your stock and sector?
4. Any government
announcements due that week that could affect your trade?
5. Is your stock due to
announce earnings within the next week?
6. Did you use a checklist for the stock as well as the checklist
for those items away from the stock chart itself?
are essential but basic questions. Naturally there are other
questions, such as when are earnings due and so on. Consider this an essential list
for the Top Down approach but by no means comprehensive.