Short term trading can be an incredibly lucrative process. However, without proper analysis, it can also be a process that leads to big losses. The good news is that there are several tools that make analysis a simple process. Today, we’ll talk about the top 3 indicators for short term trading. So, let’s get right to it…
Short Term Trading Indicator #1: MACD
The MACD is also known as moving average convergence divergence. This is an incredibly popular indicator that is used not only to show whether or not a trend is in process as well as the momentum of the trend associated with any security. This indicator is made of of to EMA’s or exponential moving averages that cover two different time frames, generally these are 12 and 26-period time frames. The MACD, which is the actual indicator is the difference between the two moving averages. The higher the number, the stronger the directional momentum of any given trade. The lower the MACD, the less momentum the trend has. Click to learn more about using the MACD for Short Term Trading Strategies.
Short Term Trading Indicator #2: On-Balance Volume
On-balance volume, also known as OBV is a technical indicator that tracks the positive and negative flow of volume on any security and what that volume flow has to do with the price movement in that security. OBV is a number that shows the average volume on a stock by adding or subtracting each trading session’s value depending on the price movement within that session. Essentially, trading volume is what causes price movement. High volume generally indicates that gains are ahead while low volume generally indicates that declines are coming. Therefore, short term traders watch the OBV on securities to see if the number is going up or down. This gives them an idea of what to expect in the price of the security over a short period of time. Click to learn more about using the On Balance Volume Indicator.
Short Term Trading Indicator #3: Average Directional Index
Essentially, short term traders make money by taking advantage of strong trends in the value of a stock. So, the Average Direction Index or ADX comes in handy. The ADX is an indicator that focuses on trend momentum instead of directional changes. When the ADX on a financial asset is below 20, it means that the current trend is weak, if the asset is even trending at all. However, if the ADX is above 40, it means that the current trend has strong directional strength. So, short term traders tend to look for assets with a high ADX as a high ADX means that momentum will likely keep the trend headed in the same direction, making taking advantage of the trend relatively simple. Click to learn more about using the ADX indicator when trading.
Like a contractor, any successful short term trader has a tool box that’s filled with tools that make his or her job easier. Ultimately, without properly analyzing trends, short term trading is nothing more than gambling. However, by taking advantage of indicators that are known to lead to productivity in trading, the ball is put in your court, giving you the ability to somewhat peek into the future. Now, no one has a crystal ball that allows them to see exactly what’s going to happen in the market moving forward. However, using strong indicators like the tools listed above, can give you such a high level of accuracy that you may feel as though you have a crystal ball. So, what are you waiting for? Add these tools to your repertoire, and start short term trading with improved accuracy.