Day trading technical indicators are the representation of
mathematical formulae a day trader can use to decide when to do the
trading. Forex day trading involves buying and selling of various
currencies with the goal of making a profit from the difference between
the buying price and the selling price within a day.
The day traders employ different strategies like short term scalping
where positions are only held for a few seconds or minutes or longer
term swing and position trading, when they hold the position for the
whole trading day. For their trades they follow one or more day trading
technical indicators or develop a strategy based on a combination of
many such indicators.
A day trading technical indicator is a series of data points that can
be derived by applying a formula to the price data. Price data includes
any combination of the open, high, low, or close over a period of time.
Some technical indicators may use only the closing prices while others
incorporate volume and open interest into their formulas. The price
data is entered into the formula and a data point is produced, which in
turn creates the indicator.
The list of day trading technical indicators is practically endless.
There are Absolute Breadth Index, Bollinger Bands, Bull/Bear Ratio,
Candlestick Charts, indicators based on Dow Theory or Elliot Wave
Theory, Envelopes, Fibonacci Levels, MACD, Moving Averages, TRIX,
Weighted Close, and many more. All these can be used as a day trading
technical indicators with slight or no modifications.
For example, the absolute breadth index or ABI is a market momentum
indicator which shows the activity, volatility, and change taking place
in the market without paying attention to the direction of the prices.
High readings implicate active markets. As a day trading technical
indicator, it can predict future direction if combined with other
indicators.
Bollinger Bands on the other hand are a kind of moving average
envelope. It exist at standard deviation levels above and below the
moving average and generally stay within the upper and lower bands. As
a day trading technical indicators, it predicts the future market
movements. Fibonacci numbers with 4 theories - arcs, fans,
retracements, and time zones, which highlight reversals in trends.
Day trading technical indicators has three functions-to alert, to
confirm and to predict. So a trader can never miss a trading
opportunity or run into loss if he or she can use the indicators
judiciously.
The best approach will be to develop a strategy based on more than one
indicator. Learning how to use these indicators is more of an art than
a science. Through careful study and analysis, a day trading technical
indicator can be developed over time, but they can never be full proof.
