How to Use Intraday Data

Day traders often rely on intraday data.

Day traders often rely on intraday data to inform their quick trades. Intraday trading benefits from indicators that are not useful for longer term investing. While these indicators do provide insight into the intraday price action, they are not foolproof. It can take years for a day trader to fully understand the nuances and patterns of intraday data and profit from them. However, anyone can learn the basics of these tools. Never commit your capital to day trades based on these tools until you have followed them closely for some time and learned how they work in real-time.

Instructions

1. Sell shares, or at least avoid buying into the stock market if the "Tick" is at a positive extreme. Most trading platforms provide the "Tick," which is intraday data distributed by the New York Stock Exchange. This indicator shows the net number of stocks currently rising or declining in price. A positive Tick indicates that most stocks are rising at that moment. If the Tick reaches a positive extreme, it usually indicates that stocks are unlikely to rise any further at that moment, and may instead decline.

2. Buy shares, or at least avoid selling into the market if the Tick is at a negative extreme. When this occurs, the overall market is unlikely to drop any further over the next few minutes, and this may provide the short-term opportunity necessary to profit from a quick intraday trade.

3. Watch the Dow Transportation Index (TRAN) throughout the trading day. Like the more popular Dow Industrial Average, this indicator averages only the stocks of companies in the transportation sector. Traders often observe that the TRAN leads the rest of the market. If the Dow is falling but the TRAN is rising, this could indicate that a reversal is imminent.

4. Monitor the volume weighted average price (VWAP) of the stock or index you are trading. The VWAP indicates what the average market participant paid for shares during the intraday session. Brokers and institutional market players often use the VWAP for entry signals. If a stock is positive for the day, then entering when it reaches its VWAP is a good price to pay. Thus the market often bounces off its VWAP as investors find increased demand for shares at this price point. Day traders can use the VWAP to quickly profit from these bounces.

Tips & Warnings

• Extreme readings in the Tick are a matter of personal risk tolerance. Study the intraday Tick readings of the last several days and see where the usual extremes lie. The Tick rarely exceeds 1,000 in either direction, though some traders consider readings of 400 above or below zero to be extreme.

References

• Daytrader's Bulletin: Daytrading Tips & Tricks
• Investopedia: Volume Weighted Average Price - VWAP