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There are a large number of day trading indicators. All work in tandem to produce the best results possible for the trader. Common indicators include price oscillators, price patterns, support and resistance levels, and other analytical strategies.
Price oscillators are arithmetic manipulations of price that are intended to aid the trader in determining whether the trend is strong, weak, or about to change. They are called oscillators because their output oscillates between high and low. Often these indicators are “normalized”, meaning that they are rewritten to have values between 0 and 100.
Head-and-shoulders, triangles, flags, pennants, and wedges are price pattern day trading indicators. According to theory, price patterns show how the traders as a group perceive the market. Many of them carry estimates of the minimum price that will be reached.
Support and resistance levels are used to decide where to buy or sell. Support is a point or area where prices quit going down, which happens when enough buyers entered the market to prevent the sellers from pushing prices lower. Prices dropping through support would be seen as a signal to sell, and bouncing up from support would signal a buy. Resistance is the mirror image of support and happens when rising prices are met with enough selling to end the upward move. If prices move easily through resistance, that would be a signal to buy.
Moving averages and moving linear regression lines are common day trading indicators. If prices above the moving average or moving linear regression line imply the market is headed up, and prices below imply it is headed down. Moving averages provide the base line for a volatility assessment known as Bollinger Bands, the price point that is two standard deviations above and below the moving average. Some traders use Bollinger bands as an indicator that the market has gone too far and may be ripe for a reversal, while others use them to indicate strength in the direction of travel.
Trend lines and channels are common day trading indicators. A trend line is the line drawn between two lows and extended upward in a rising market. An upward channel is created by copying the trend line to the nearby highest high. In a falling market, the line is drawn between two highs and extended downwards. A downward channel uses the down trend line in a falling market.
Most often, prices breaking out to the upside of a rising channel show strength. Prices breaking out to the downside of a falling channel imply the end of the trend is probably very near. When prices fall below the upward channel line it is time to exit your long positions, while prices rising above a downward channel are a signal to exit short positions.
Elliot wave counting is a lesser known day trading indicator. The basic idea is that markets rise in sets of three waves, but fall in sets of two. A secondary idea is that the market will provide minor waves inside the major waves, and those minor waves also proceed in a three waves up, two waves down pattern.
Japanese candlesticks are a day trading indicator that can be used in conjunction with all the above techniques. Candlesticks are a method of drawing each price bar so that what happened within that bar is easy to see. There is also a body of theory of the way groups of candlesticks tend to predict short term market motion.