Generally, intraday stock trading requires identifying the overall trend and finding the right entry and exit points that are based one overbought and oversold conditions. Because the stock prices typically revert to the mean in a short period of time, short-term technical indicators become very important to help identify your opportunities in intraday stock trading.
1. Identify overall trend.
In order to maximize your odds of success, you need to trade with the trend always. Different ways are there to identify the overall trend, but probably the easiest way is to use a MACD (moving average convergence-divergence) histogram, which can measure the change between two moving averages. The results will be put in a histogram and an uptrend is indicated when the histogram changes from negative to positive while a downtrend is indicated in the reverse way. The most important thing is to enter intraday trades that go in same direction as the trend you find by the MACD histogram.
2. Find entry points.
Now you have identified the overall trend, and then you need to identify when you should enter a trade. A commonly used tool is called stochastics oscillator, which is a technical analysis tool that can compare a security’s closing price with its price range throughout a given period of time. The theory behind this tool is that upward trending stocks typically close near the day’s high while the downward trending ones close near their lows. In order to use the tool to find the right entry points, you should wait until the %K is below 20 or the %K is higher than the $D line at a point below 80.
3. Find exit points.
You only achieve half when you managed to find the right entry points and the other half of the challenge is to determine the exit points. The trick here is to stay in long enough so that you will be able to rack up some good gains and exit before the trade turns into loss. Remember, not every trade goes your way, so don’t forget to determine a stop loss point. You can decide how tight the stop loss should be to your entry point based on your risk profile and your style of intraday trading. If the trade goes in your favorite way, you can decide whether to exit it after a predetermined increase or you can identify the exit relying on the stochastics oscillator. When you use the stochastics indicator to find the exit points, wait until the %K peaks are just below 100 and then begin to head downward. When you are using the stochastics indicator to find the exit points, you need to wait until the %K peaks are just below 100 and begin to head downward. It is the time for your position to be sold when the oscillator hits 80.
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