Success in intraday trading depends on identifying the general trend and discovering entry and exit points that are dependent on oversold or overbought conditions. Since stock prices normally slip back in the short term, you should make use of short-term indicators to assist you in identifying the best trading opportunities.
To get the most out of your trading venture, go with the trend at all times. There are numerous ways to discern the overall trend, though the easiest method is to utilize a MACD histogram. MACD means moving average convergence-divergence. It gauges the change between two shifting averages. You will get result in the form of a histogram.
When the histogram shifts from negative to positive, an uptrend is being indicated. On the other hand, a positive to negative movement dictates a downtrend. The critical thing is to only consider intraday trades that set off in similar direction as the trend pointed out by the MACD histogram.
For successful intraday trading, you should look for entry points. Knowing the right time to trade gives you a definite advantage over other traders. A theory that you should always keep in mind is that upward trending stocks often close near the highs of the day while downward trending stocks move closer to the lows of the trading day.
Distinguishing entry points is only half of the battle; you also need to find the most beneficial exit points. When identifying a stop loss point, it’s vital to assess how tight the stop loss is on your preferred exit point. If the trade favors you, you can still trade after a set increase of revenue.
If your stock trades in a very tight price range throughout the day, then all of sudden breaks out of that array, you may use this indicator to short or buy the stock. You should take advantage of signals to purchase the stock, be able to ride the current price momentum for a specific period of time, and then sell your stock for fast cash.
While some investors find short selling as a great way to make money, note that this process comes with unique risks. It has considerably difficult mechanics, thus setting a stop loss point will lock in profits for you.
Like in mutual fund investing, there are some hints that you need to be aware of to become a successful day trader. For instance, if a stock has constant volume throughout the trading day, trading about 30,000 shares every 5 minutes, then the volume swiftly increases to 60,000 in five minutes, this means that another trader is either aggressively purchasing or selling the stock. You should comprehensively analyze the situation and then make your mind up whether you will purchase the shares if the volume spikes lead to increase of share price, or sell your shares short if you deem that the price will decrease immensely.
Since intraday trading means securing a trading position within the day, if you look forward to after-hour trades, you should be a client of a brokerage firm that has access to ECNs or Electronic Communication Networks, which are trading platforms that permit after business hours trading in major stock exchanges.