How to Follow Technical Analysis for Day Trading
There are many variables to consider when choosing to trade in a company's stocks. Some traders consider past performance, others use mathematical forecasting, while still others look at the underlying worth of a company--and there are dozens if not hundreds of other methodologies. Day traders who use technical analysis, however, believe that every variable is already reflected in the stock price of a company, and these traders simply analyze stock movement in their attempts to make a profit with quick buying and selling.
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Instructions
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Follow Technical Analysis for Day Trading
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Study past stock price charts for the company you are considering buying into. Observe price and activity data from 1 year ago, 6 months ago, 3 months ago, 4 weeks ago, 1 week ago and today.
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Ask yourself if you see any trends or cyclic patterns, such as a deep dip after a sharp spike or an abrupt rise in price after weeks of modest activity.
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Follow trends, not just prices. If a price spikes, you may have missed out on an opportunity to buy or sell. However, if you see a trend continuing without lagging, you may be able to execute trades that follow the momentum, as long as it is consistent with your analysis.
Understand Arguments For and Against
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Be aware that some market analysts firmly believe that the market moves in cycles and is a system of actions and equal and opposite reactions. These thinkers support technical analysis for day trading because they believe past performance is a quality indicator of future activity.
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Know, however, that many analysts believe the market to be a "wild card," and that no past indicator can truly tell you what will happen with an individual stock, or if the stock will follow the market as a whole, today or 10 years from now.
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Analyze "liquidity provision," a variable introduced by technical analysts that argues for this style of market forecasting. You can have the most worthy stock in the world, but if it's not trading, you aren't going to make any money from it. By this reasoning, researching past performance of a stock is a good way to predict future prices.
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Tips & Warnings
Stock price can sometimes simply reflect market reaction to an untrue rumor or to worrying national news that causes a total market slowdown. There are no guarantees that day trading will make you money.
