Basic Day Trading Tools To Know About
After one has already learned how to read a chart and the basics of support and resistance, the next thing that he has to do is brush up on indicators. Now, indicators are used to help traders identify when is a good time to enter into a trade, what kind of trade to take, and when to exit. If one is serious about investing in stocks, commodities, or currency, then he should add these basic day trading tools to his kit.
The RSI, or the relative strength index is the first tool that will be mentioned here. The RSI bases its movement on the volume of trades to see whether the medium is overbought or oversold. As a general rule, overbought mediums tend to go down in price and oversold ones go up. Knowing this, one will know when he will enter or exit a trade.
The 200 EMA is a very useful tool that one can use to see the overall trend of an investment medium. The 200 EMA is a line that runs through the chart and smoothens either upward and downward. If the line points upward, then the trend is an uptrend while if the line points downward, then it is a downtrend.
Another way to use the 200 EMA is to look where the chart is. If the candlesticks are above the 200 EMA, then generally one will only look for buy trades. However, if the candlesticks are below the 200 EMA, then the traders will usually look only for sell trades.
The MACD is also very useful when one wants to know whether to enter or exit a trade, especially in stocks. Basically, the MACD has two moving average lines with a histogram found in the center. The way to use this is to see what direction the moving averages cross and make a buy trade when they are moving from down to up or make a sell trade when they are moving up to down.
Another very interesting tool that one can use is the Bollinger Bands or BB for short. The BB can be used as a means to know when to exit a trade that is already ongoing. The rule here is to exit whenever the price already touches either the BB at the top or the BB at the bottom.
Other than an exit strategy, the Bollinger Bands can be used as an entry strategy if used together with an EMA 5. If the EMA 5 crosses the middle Bollinger Band and is moving downward, then it is a sell signal. If the EMA 5 crosses the Bollinger Band going upward, then it is a buy signal.
These are some of the more popular tools that one may use in order to trade. As one can see, these indicators are very helpful and they're also extremely easy to use since they are pretty straight forward. As long as one knows how to use these basic tools and integrate them to what he already knows about trading, then he should have no problem with any of his trades.
The RSI, or the relative strength index is the first tool that will be mentioned here. The RSI bases its movement on the volume of trades to see whether the medium is overbought or oversold. As a general rule, overbought mediums tend to go down in price and oversold ones go up. Knowing this, one will know when he will enter or exit a trade.
The 200 EMA is a very useful tool that one can use to see the overall trend of an investment medium. The 200 EMA is a line that runs through the chart and smoothens either upward and downward. If the line points upward, then the trend is an uptrend while if the line points downward, then it is a downtrend.
Another way to use the 200 EMA is to look where the chart is. If the candlesticks are above the 200 EMA, then generally one will only look for buy trades. However, if the candlesticks are below the 200 EMA, then the traders will usually look only for sell trades.
The MACD is also very useful when one wants to know whether to enter or exit a trade, especially in stocks. Basically, the MACD has two moving average lines with a histogram found in the center. The way to use this is to see what direction the moving averages cross and make a buy trade when they are moving from down to up or make a sell trade when they are moving up to down.
Another very interesting tool that one can use is the Bollinger Bands or BB for short. The BB can be used as a means to know when to exit a trade that is already ongoing. The rule here is to exit whenever the price already touches either the BB at the top or the BB at the bottom.
Other than an exit strategy, the Bollinger Bands can be used as an entry strategy if used together with an EMA 5. If the EMA 5 crosses the middle Bollinger Band and is moving downward, then it is a sell signal. If the EMA 5 crosses the Bollinger Band going upward, then it is a buy signal.
These are some of the more popular tools that one may use in order to trade. As one can see, these indicators are very helpful and they're also extremely easy to use since they are pretty straight forward. As long as one knows how to use these basic tools and integrate them to what he already knows about trading, then he should have no problem with any of his trades.
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