In order to profit from day trading a trader needs to be able to correctly anticipate minute by minute and hour by hour price movements of commodities, futures, currencies, or stocks. Successful day traders use technical analysis to do this. Technical analysis uses market data such as volume and price to make predictions. Knowing how to use technical analysis for day trading is an essential skill for professional day traders.

How to Use Technical Indicators for Day Trading

The use of technical indicators for trading in markets goes back hundreds of years to Japanese rice traders in the days of the Samurai. Although the trading system that they used, called Japanese Candlesticks, is still in use, technical indicators today are derived mathematically from past volume, price and open interest information. Applying this information to the commodity, future, currency pair, or stock that you are day trading, technical indicators tell you whether to buy, hold, or sell. Commonly used indicators include the accumulation/distribution line, on-balance-volume, average direction indicator, and moving average convergence divergence. Day traders commonly use combinations of these indicators to guide their trading. Working with a trading platform like NinjaTrader, day traders use these indicators to enter and exit trades profitably.

How to Analyze a Stock for Intraday Trading

Day traders make money by trading commodities, futures, currency pairs and stocks that are volatile. Knowing how to analyze a stock for intraday trading is an important skill as it allows you to be trading where you will find the best profit potential. The same general principles apply to futures, commodities, and currency pairs. Because price movement is essential for trading profits, experienced day traders choose stocks with high liquidity and moderate to high volatility. The task is then to identify the trend within the trading day and capitalize on it.

How to Read Technical Indicators

Day traders make money by identifying and trading trends. Oscillators are indicators used for identifying trends. One of these is the parabolic stop and reverse. The system place dots above or below the chart on the trade station screen. These dots indicate the likely direction for price movements. Dots above the chart predict a downtrend and dots below the chart predict an uptrend. No matter which indicator or set of indicators you are using, the system will indicate the direction in which analysis of past and present market date says the market will move next. Traders buy, sell, and set stop loss points based on these indicators.

How Do Day Traders Know What to Buy?

The first rule for picking stocks, futures, commodities or currency pairs to trade is to look for high liquidity and medium to high volatility. Then a trader will look for indicators of upward movement. If a commodity has been on an upward trend this is a place to start but it is important to follow your indicators because within any upward movement there are fluctuations. Because day traders enter and exit trades within a single trading day, they follow their indicators for the day instead of the prevailing multi-day trend.

How to Analyze Stocks for Day Trading

When analyzing stocks, commodities, futures, or currency pairs a simple approach is typically better than a complex one. An indicator that works well for day trading stocks is the relative strength indicator. The relative strength indicator measures price momentum and provides an indication of whether a stock is overbought or oversold. When a stock is overbought it provides a selling opportunity and when it is oversold this is a buying opportunity.

How to Know When to Buy a Stock Day Trading

Unlike with long term investing or even swing trading, day traders do not focus on stock fundamentals when choosing to buy. Rather they focus on how to use technical analysis for day trading. When an indicator shows that a stock is temporarily oversold, this is a buying opportunity. When a stock that routinely trades within a range approaches the bottom end of that range, it is a time to consider buying. And, when a stock is moving upward in a strong bull market it is often time to buy during an upward surge.

How to Know When to Sell a Stock Day Trading

As with buying stocks when you are day trading, selling while day trading is more strongly based on technical analysis indicators than fundamentals and long term trends. When a stock is temporarily overbought or when it is trading near the top of its usual trading range these are both reasons to sell a stock when day trading. Another reason that applies in any situation is when your indicators are not making sense and you are not sure what to do. When in doubt sell and wait until you are more certain before starting to trade again.

Technical analysis helps guide your day trading and working with the TradeSafe System gives you more accuracy in determining trend strength for the best day trading results.

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