The daily Dow Jones Industrial Average is a simple convenient stock market average to study. The S&P 500 can also be used; however, it is no more reliable for determining trend or direction, even though it is a broader, more modern and representative average consisting of 500 companies.
The most comprehensive average is the Investor's Business Daily 6000 market value-weighted index, which covers all New York Stock Exchange, American Stock Exchange, and NASDAQ common stocks, over 6000 equities in the overall market.
A Harvard professor once asked his students to do a special report on fish. His scholars went to the library, read books about fish, and then wrote their expositions. The students were shocked when, after turning in their papers, the professor tore them up and threw them in the waste basket.
When they asked what was wrong with the reports, the professor said, "If you want to learn anything about fish, sit in front of a fish bowl and look at fish." He then made his students sit and look at fish for hours. The classmates rewrote their assignment solely from observing and studying the object itself.
The daily Dow Jones Industrial Average represents an average of thirty large, basic industry stocks in America. It is one of the objects you want to observe and study carefully.
The difficult-to-recognize but meaningful changes in the behavior of the market averages at important turning points are the best indicators of the condition of the whole market.
The general market should be studied closely every day, since reverses in trends can begin on any one day. We emphasize this practical method rather than that of interpreting other subsidiary indicators that are supposed to tell you exactly what the market should be doing or listening to the many stock market letter writers or technical analysts that pore over twenty indicators and tell you what they think the market should be doing.
Market letters sometimes may create doubt, uncertainty, and confusion in an investor's mind. Markets tend to go up when people are skeptical and disbelieving.
Learn to interpret a daily price and volume chart of the general market averages. If you do, you can't get too far off the track. You really won't need much else unless you want to argue with the trend of the market. Experience teaches you that continually arguing with the market can be very expensive. That's how people go broke!