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Day Trading using Leading Technical Indicators

Day-Trader

I’m not a “Day Trader” by definition.  While I recognize the benefits (and prefer to invest) using the Weekend Investor Strategy, many people still want to trade more frequently. They’re interested in the “bottoms” and catching them before the stock explodes upward. They’re educated and don’t mind spending time each day watching their portfolios, even if only for 5 minutes each evening.  I understand the appeal and I see the benefits of a more active approach too.  I suppose it comes down to individual preferences and risk tolerances.

So, I developed a Evening Investor Strategy… and I’ve spent the past several posts sharing with you my journey toward its development.  I began by introducing how I was Day Trading a Stock Tip received by my “professional” advisor.  I managed to buy a car with cash from the purchase and sale of a single stock… and also lost tremendous amounts of cash when I “bought on sale” and “dollar-cost” averaged another stock tip.  I got wise… and moved toward limiting my losses by using a “5% Half out strategy,” demonstrated in the “Day Trading for Quick Profits” article.  But selling half of a winning position at 5% up when it climbs 50% doesn’t feel so good… so, I looked for ways to measure stock movement and found some answers within technical analysis.  It’s difficult, but possible to “Day Trade using Technical Charts and Analysis.”  But the vast majority of technical indicators… all but two… are lagging indicators, leaving the investor reacting to what has happened rather than being able to anticipate what will happen or see what is currently happening with a stock’s momentum.

Day-Trading

Today, I’m going to share with you the two technical indicators that are “real-time“ indicators… and have helped me make more profit than any other technical indicators. But before you “continue reading,” please grab a piece of paper and write down your guesses… no peaking!

Two “Real-Time” Technical Indicators

I can’t overstate the importance of using certain fundamental indicators… but knowing what to buy is only part of the challenge of successful investing.  Knowing when to buy and sell are the other critical components.  Two “real-time” technical indicators can assist with this process…

The first is price… when you think about it, price is always “real-time,” active, constantly updated.  All the other indicators are a reflection of the price action… which means price leads the way.  If you want to know what a stock is doing or is going to do… look at the stock price.

One of the things I realized during the development of the Evening Investor Strategy was that when the stock price moves, it is a cue to how much further the price may move.  In other words, if a stock price gets above a certain point, it tends to rise… and vice versa. These “arbitrary” price points or estimates are often referred to as “support” and “resistance.”  I’ve found this to be true… as I’ve been able to measure that if a stock price reaches a particular price point, it continues to move in that direction the majority of time.  So, if I can accurately estimate the point a stock price must reach to confirm it will most likely continue in that direction, I’m way ahead of the average investor… in “real-time.”

The second is volume… what is critical about volume is that it confirms the strength of the price movement in “real-time.”  There is no waiting for lines to cross or equations to be calculated… and any investor can do it.  Look at the movement of the stock price and then at the volume… and any investor can see what is actually happening, right now.  If the stock price is crossing up above your price point on weak volume, it most likely signals weakness.  Conversely, if the stock price crosses up above your price point on above average volume (even unusually high volume), it most likely signals strength and a continuation of the trend in the stock price.  For how long?  Well, nobody knows the answer to that question… except by evaluating the stock price and volume the next day.

You can see how valuable this information is for knowing when to enter or exit a stock position… if you can anticipate if a stock reaches a particular price point, especially on high volume, that the stock will continue in that direction.  Armed with this probability, investors can protect their capital and maximize their returns by combining price and volume.

As I mentioned in “Day Trading using Technical Charts and Analysis,” philosophical ideas are a dime a dozen… as Leo Tolstoy wrote:

It is easier to produce ten volumes of philosophical writing than to put one principle into practice.

So far, I’ve share with you several principles for investing wisely as an Evening Investor… but it’s time to get practical now.  So, over the next few articles, I’m going to bring it all together by describing the principles of the Evening Investor Strategy and by demonstrating how to apply these principles in real situations, with real charts.

In fact, if you have a stock you follow closely or would consider investing in, feel free to leave a comment with the stock name and symbol.  I’ll use several of your submissions to demonstrate how the Evening Investor Strategy would work in your favour.

By the way… did you guess the two indicators?  If not, what did you write down… you did write it down, right?  No cheating…

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