If you’re a day trader or about to become one, you’ve probably been wondering about what technical analysis can do for you. The short answer is, plenty. The longer version is that it’s important to know two things about technical analysis. First, learn what the advantages are to using this in your everyday buying and selling. Second, learn about two of the most commonly used indicators.
No matter which indicators you end up using, try to know how analysis works and why it works. The principles are all mathematically derived, but you need not be a math wizard to use tech tools. For example, Bollinger bands are a popular indicator in technical analysis. The principle behind this indicator is to study the ranges of price within the bands and look for dips below the lower band, or above the higher one. A lot of high-level math and calculus goes into construction of the bands, but you don’t have to do those calculations yourself. If you did, you’d spend half your day doing nothing but crunching numbers.
Your brokerage platform does the heavy lifting for you, so if you wanted to use the Bollinger bands, just click the chart in the appropriate place and add them to the mix. Bollinger bands are then automatically on your chart and you can see any price that breaks through, above or below. You can find out all the details by speaking with your forex trading provider. They’ll be happy to tell you how to access all the technical tools on the platform, provide guidance on how to use them, and more.
What TA Can Do for You
Day trading is a numbers game. You need to be able to spot trends, know when to get in and when to get out of a position, get early signals about major moves in either direction, and constantly have ample information at your fingertips. Technical analysis can do all of those things and more. The best example is the most common tool, the simple moving average. This can indicate when to buy, when to sell, which way the trend is moving, and offer an overall feel for how long any trend might last. Additionally, some day traders use this to help find early evidence of an upcoming change in price direction, which is one of the most profitable pieces of data there is.
The Two More Important Indicators
To gain insight into any price chart, especially for day traders, it’s essential to understand how to use simple moving averages and moving average convergence divergence (MACD). These are two of the most frequently used metrics in the entire world of investing, and for good reason. Why are they so powerful? The simple moving averages measures the simple trend by calculating a moving average based on prices for a particular number of days, hours, or minutes. It reveals a bigger picture of the price action so you can hone your buying and selling accordingly. The moving average convergence divergence is similar, but more fine-tuned. It uses several math formulas to compare the 26-day average with the 12-day average to measure not just the trend but the strength of the trend.