Profits from investing over the long term come from sound analysis of the fundamentals that drive asset prices. Day trading profits come from accurately reading short term price swings in the market. Technical analysis signals are essential tools for predicting price fluctuations throughout the trading day. When you are learning the basics of these signals you can think of the process as technical analysis 101 and a way to chart your path to day trading success.

The Basics of Technical Analysis: Understanding Charts and Patterns

The basic fact behind technical signals is that market price patterns repeat themselves. By identifying the beginning of a pattern, a day trader can profit by anticipating the remainder of the pattern. The technical trader works with charts and tools like Japanese Candlesticks throughout the trading day. By recognizing basic patterns such as flags, triangles, or the head and shoulders, he or she spots recurring trading opportunities. In order to use these tools profitably a trader needs to practice in simulation trading until they routinely make “paper profits” before risking their own trading capital.

Key Technical Indicators Every Trader Should Know

There are many technical indicators and there are the ones that most day traders use. These are moving averages, the moving average convergence divergence indicator, and the relative strength index. The value of a moving average is that it smooths out momentary fluctuations so that trends are easier to see. A relative strength index helps the day trader see when an asset like a commodity future, currency pair, or stock is overbought or undersold. Successful day traders typically use more than one indicator to guide their trading decisions.

Key Technical Indicators Every Trader Should Know
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Volume Analysis: Gauging Market Sentiment

Market prices jump up and down. The task of the day trader is to determine when a price movement is the start of a trend and when it is going to quickly reverse. A good way to help make this decision is by looking at trading volume. Commonly used volume indicators include on-balance volume or OBV, rate of change, and money flow. The rate of change and volume oscillator simply look at trading volume. On balance volume adds closing prices to the equation. Tools like accumulation distribution or the money flow index assess volume, range of trading, and closing prices.

Trend Lines and Support/Resistance Levels: Mapping Market Movement

Markets go up but they do not go up forever. Likewise, a downward trend generally reverses at some point. The day trader needs to be able to interpret trend lines and to identify support and resistance levels. Doing this accurately allows the day trader to pick the best entry and exit points for their trades. The day trader marks highs and lows on their chart of choice. This is a basic but necessary task for mapping market movement and needs to be continually updated.

Integrating Technical Analysis into Your Trading Strategy

Fundamentals are what eventually determine prices. However, markets are composed of traders who are constantly trying to predict where those prices will end up. A wise day trader keeps an eye on fundamentals and the bigger picture. Meanwhile, they use technical indicators to spot changes in market sentiment which can change minute by minute. Depending on the strategy that a day trader employs, they may use technical tools to spot minute by minute profit opportunities or profitable trends that come and go throughout the trading day. In either case a profitable approach requires the integration of technical analysis into one’s overall trading strategy.