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Know the Methods Behind Day Trading

Probably the most imperative things to know about when exchanging are, Tape Reading, Technical Indicators and fundamental Discretionary Trading Rules. Having the capacity to see how to apply these techniques when exchanging is a colossal variable when figuring out how to exchange. These abilities are difficult to learn and somewhat extreme to apply while exchanging. All through this article I will clarify these principles and how to utilize them, so you can have a superior handle and a superior information about them.

What are specialized pointers?

Used primarily by short-term day traders, technical indicators apply a specific formula to the price of a security.  These ‘indicators’ look to predict future market direction by using previous price patterns.

Example of the most common technical indicators includes Moving Averages, Relative Strength Index, Stochastic, MACD and Bollinger Bands.

Day Traders use these ‘indicators’ to identify specific times in the market when the opportunity for winning trades is the greatest.

What are Discretionary Trading Rules?

Discretionary trading rules are one of the most important aspects of consistently profitable day trading.  Just like any business, you must have a business plan or a set of specific instructions on how to run your business.

Everything from start-up capital, research and development, operational expenses and even the re-investment of your profits or the management of losses are included in this plan.

Professional day traders use their rules like a roadmap to success, just like a small business owner uses the business plan they wrote.  A disciplined use of this set of ‘rules’ results in a day trader taking only the trades that meet his/her specific trading criteria, and nothing else.

Just like a small business owner would never buy inventory for a product they don’t sell, a day trader must practice discipline to avoid the trades that do not meet his/her criteria, and to only take the trades that have demonstrated the highest percentage of winning results.

Tape Reading and How To Use It.

What is it?

  • Tape Reading is the study of raw price action as it comes across your time & sales window, and is considered by most to be the ‘purest form of the market.’
  • The term tape comes from ticker tape; print out by the ticker tape machines available since 1870s which reports the latest trade/bid/ask update information.

How it’s used:

  • Predict short term price changes by examining price and volume information as it comes across the ticker tape.
  • Most effectively used at potential turning points in the market to gauge overall market sentiment and help determine the future direction of price.
  • Traders use this to see confirmation of a potential trade set-up, or a heads-up that a set-up should be avoided.

Benefit to the trader:

  • Filter out the highest percentage set-ups
  • Confidence in your entries
  • Know when to exit a trade
  • Maximize profits on each trade
  • Limit the risk on each trade

What to watch:

  • Speed of the orders
  • Size of the orders
  • Order Condition

Learning to read the tape is a vital part to becoming a successful trader in the long term, and understanding how to learn this skill can be difficult if you don’t know what to look for.