There are several tests that can/should be done.
1) Coolant system pressure test. This is accomplished using a rented tool (Free from Autozone) that has allows you to pressurize the cooling system, and monitior the pressure with the engine off, so the system remains at constant temperature. If the pressure drops, you have a leak in the cooling system. It won't tell you where.
2) Compression test. A pressure gauge is attached to a cylinder in place of the spark plugs. (Kits can be bought for $20-$40 at Autozone) The engine is cranked with the starter motor, the gauge is monitored, and the process is repeated for each cylinder. All cyclinders should give readings within 10% of each other. If a cyclinder has low compression, there is a leak in the combustion chamber. It could be from a head gasket failure, cracked head, bad rings, or a hole in the piston or block. A way to check if it is rings is to add a few drops of oil to each cylinder before the test. If there is a large increase in compression, rings are suspect.
3) Leakdown test is an advanced compression test that uses shop air to pressurize the cylinder instead of the starter motor. The engine must be rotated to each cylinder's TDC to seat and seal both intake and exhaust valves. The gauge is attached much the same way as the compression tester, through the spark plug hole. If there is a tight seal, the gauge will remain fairly constant, some leakage is normal. Where this test shines is its ability to pinpoint the problem. Look for escaping high pressure air!!
First I would change the plug, and look for a loss of coolant and oil. Check to see if you have lots of bubbles or milkyness in your oil.