"Technical Analysis is as essential to the day trader as
the
stars
have been to sailors for hundreds of years."
What Is Technical Analysis?
Technical Analysis is a way in which a day trader views pervious patterns and values to get an indication of where a stock is likely to go. This is essential in gaining insight to high probability movements. Therefore Technical Analysis is the source of identifying high probability moves. for the day trader.
Day traders are guided by technical analysis in their entry points and exit points so that they know before something has happened what is most likely to happen when a technical point of interest has been met.
Beginner day traders will be tempted to jump into a position with little indication of direction and possible behaviour. A skilled trader uses technical analysis and alerts so that they are made aware at points of interest in a trend.
They then observe direction and confirmation so that the probability of their entry point is supported by many factors influencing a favorable outcome.
It is important to note that this is that art of probability. Things like whole numbers and market sentiment play important roles but many times for no apparent reason erratic and unpredictable behavior can occur. The day trader must be always alert and ready.
Technical Analysis is so important because a major influence in a stock is its previous behaviors. They indicate points that most people found important enough to buy or sell. Critical points are found by careful analysis of bahaviour at these points. Lines are drawn of support and resistance from which day traders play.
Technical Analysis helps a day trader with stock price forecasting. This is when a day trader looks at the prices and price movements of a stock for indication of what can be made from a stock rationally under certain market conditions.
How To Apply Technical Analysis
Technical Analysis indicators used by day traders are:
When all of these indicators point in a direction there is a strong possibility that a stocks momentum will either change and move in the direction indicated (If a reversal is indicated) or keep moving in the current direction indicated. All of these indicators give day traders confidence but nothing is certain in a world of probability so they can never be fully trusted.
