How to Prepare for the Next Day in the Stock Market

Planning is the key to successful investing. If you invest your money on impulse, you are almost guaranteed to lose, but if you develop a strategy and stick to it, you have a chance to see your portfolio grow in value. Whether your strategy is long-term investing or short-term trading, you need to review market developments and review your plan every day.

Structuring Your Portfolio

The route you take in the stock market will determine how you spend your time planning for the next day. If your temperament is risk-prone, you may be a short-term trader, and for you, following daily changes is critical. Even if you have a long-term focus, you need to follow current changes that might make you shift your strategy. Planning your investments is easiest if you work with a small group of stocks -- maybe in just one sector -- so that you can have the time to become intimately familiar with them. Whatever your investment horizon is, you must review and understand economic and market developments.

News of the Day

Begin your daily planning session with a review of the news of the day. If there is a holiday or the expectation of an important government announcement, the markets may respond with lower than normal activity. Factor events like these into your planning. You can track the release of key economic statistics and government releases by visiting Yahoo's Economic Calendar at www.biz.yahoo/c/e.html. Find other sources of information that you trust to get market reviews. Many financial reporters sensationalize market changes, and you do not want to be swayed by news hype.

Intermediate Trends

After reviewing economic and market news, check the direction -- if any -- of intermediate trends in the market. You can do this by examining the direction of several of the key indices such as the Dow Jones Industrial Average, the S&P 500, and an index for the sector where you are invested. A cursory examination of the charts will tell you if they are trending up or down, or are stalled in a trading range -- trading flat and going nowhere. If you track multiple indices, see if they are trending together. Divergence between them will denote market uncertainty unless you can explain the reason from what you already know about the events of the trading day.

Short-Term Trends

Examine the overall market to see its short term direction. Look at the advances-to-declines ratio to see how many stocks are rising compared to those that are falling. Check to see how many stocks are reaching new highs and new lows. Do not neglect to see if trading volume is in the normal range or if events and market sentiment are causing abnormal activity.

Your Stock Performance

With a solid grasp on market conditions, you can see how well-positioned your stocks are. See if they are advancing and reaching new highs or moving in the opposite direction, and act accordingly. If you are a long-term investor, for example, you may decide to ride out short-term fluctuations. If stocks are rising, you may wish to raise your stop loss orders -- the orders to automatically sell if prices drop from their current levels. If you are a short-term trader, determine if your stocks have hit your buy and sell target levels and be prepared to move with the opening of the next trading day.