There are many advantages to extremely short-term trading, so if you’re going to try it, here are the best indicators for day trading.
Day traders get a bad rap. Some say day traders are degenerate gamblers who have found a venue beyond casinos to take substantial risks. Others have been more positive, saying day traders provide liquidity when market makers are not willing to step in a trade.
I’m neutral. Day trading is not for me, but there is an appeal to not holding securities overnight and waking up each morning with a clean slate.
The advantages of day trading
We all know long term investing wins out, but make no mistake: a day trader has some unique advantages.
When market volatility is rising, active traders get nervous. But a day trader may not feel the same stress. Their goal is to end each day with zero positions and only cash in hand. They don’t have to worry about volatility tomorrow or next week – only today.
You might say a day trader is timing the market, which we have long said is a losing proposition. But a day trader views the trading landscape with a microscope, comparing different scenarios and lining up trade ideas that will happen in mere hours.
Momentum is a key factor in determining trading success. A day trader can ride that momentum for 4-6 hours and make out like a bandit, more than an investor. It is much like the legendary competition between the tortoise and the hare. One takes longer, but both fnish the race.
Best indicators for day trading
If I was day trading, these are the indicators I would rely on:
- Price and volume, as always. Is price action healthy or distorted? Is money flowing into or out of a name? Some names, like Tesla, are great day trading vehicles based on answering only these two quesitons.
- Short term charts, like the 15-minute, would help me scale into names with short-term momentum behind them. Stocks can travel quickly when momentum’s on your side, letting you cash out with a nice win by the end of the day.
- Market volatility, which I mentioned above, is an excellent tool to help you decide to go long or short the market. I would use the 15-minute VIX to gauge the trend’s direction.
- When the market is well-bid during the trading day, that bullish feeling would propel me to take more calculated risks.
- It is hard to price in macro news, but when politics and markets cross paths, some opportunities are abound. Pay attention to the news flow and the market direction to find where they intersect.
Day trading can be a very profitable venture. You need to be well-capitalized, aware of technical signals, have a short-term memory, and most importantly, have a risk management strategy.
If you’re curious to give it a try, remember that the easiest way to experiment is to place trades on paper. Start with my list of the best indicators for day trading and then add your own. Once you feel comfortable placing winning trades on paper, you can try it for real.
