Day Trading Technical Indicators
Day trading technical indicators are the representation
of mathematical formulae a day trader can use to
decide when to do the trading. Forex day trading
involves buying and selling of various currencies with
the goal of making a profit from the difference between
the buying price and the selling price within a day.
The day traders employ different strategies like short
term scalping where positions are only held for a few
seconds or minutes or longer term swing and position
trading, when they hold the position for the whole
trading day. For their trades they follow one or more
day trading technical indicators or develop a strategy
based on a combination of many such indicators.
A day trading technical indicator is a series of data
points that can be derived by applying a formula to the
price data. Price data includes any combination of the
open, high, low, or close over a period of time.
Some technical indicators may use only the closing
prices while others incorporate volume and open
interest into their formulas. The price data is entered
into the formula and a data point is produced, which in
turn creates the indicator.
The list of day trading technical indicators is practically
endless. There are Absolute Breadth Index, Bollinger
Bands, Bull/Bear Ratio, Candlestick Charts, indicators
based on Dow Theory or Elliot Wave Theory, Envelopes,
Fibonacci Levels, MACD, Moving Averages, TRIX,
Weighted Close, and many more. All these can be used
as a day trading technical indicators with slight or no
For example, the absolute breadth index or ABI is a
market momentum indicator which shows the activity,
volatility, and change taking place in the market
without paying attention to the direction of the prices.
High readings implicate active markets. As a day
trading technical indicator, it can predict future
direction if combined with other indicators.
Bollinger Bands on the other hand are a kind of moving
average envelope. It exist at standard deviation levels
above and below the moving average and generally
stay within the upper and lower bands. As a day trading
technical indicators, it predicts the future market
movements. Fibonacci numbers with 4 theories - arcs,
fans, retracements, and time zones, which highlight
reversals in trends.
Day trading technical indicators has three functions–to
alert, to confirm and to predict. So a trader can never
miss a trading opportunity or run into loss if he or she
can use the indicators judiciously.
The best approach will be to develop a strategy based
on more than one indicator. Learning how to use these
indicators is more of an art than a science. Through
careful study and analysis, a day trading technical
indicator can be developed over time, but they can
never be full proof.