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Day Trading: Buying Signals on the Market

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When you are a day trader, it’s a given fact that you need to make money by taking advantage of price movements in individual assets.  This is done typically with high leverage over the capital.

The thing is, it’s not really easy to know when to buy and what to buy.  Therefore, it’s necessary to consider some signals that you can follow whenever you conduct your trades.   

In this article, we will discuss when and what to buy, and when to sell.  

When and what to buy  

There are three primary things you need to consider in order to decide properly where to focus on.  As a day trader, look out for these items:

Liquidity – liquidity lets you enter and exit a stock at an FHBC Demo Account ideal price.  And an ideal price is usually made up of tight spreads, which are the difference between the bid and ask price of a stock, and low slippage, which refers to the difference of the expected trade price and its actual price.

Volatility – volatility in its most basic form is the measure of the expected daily price range in which you operate.  The higher the volatility, the higher the potential profits or losses.

Trading Volume – the trading volume refers to the number of times a stock is bought and sold at a given time period.  This is most commonly within the trading day, known as the average trading volume. When there’s high trading volume, the interest in stock is great.  In most cases, a spike in trading volume precedes a price jump or slump.

After you figure which stocks or assets you want to buy, you must learn to identify ideal entry points.   This refers to the precise moment you’re going to invest. There are tools that can help you to do that. Among them are:

Real Time News – news can move stocks.   Therefore, it’s imperative to subscribe services that give you up-to-date market news.

ECN/Level 2 Quotes – ECNs are systems that display the best bid and ask quotes from various market participants, and automatically match and execute orders.  Meanwhile, Level 2 is a subscription-based service that offers real-time access to Nasdaq order book, which is composed of different price quotes from Forex Market makers.

Specific Signals

There’s quite a lot of confusion when it comes to setting up conditions in which you’ll enter a position.  Even though it’s pretty simple, it can still get a tad unspecific, making the trader confused when the moment comes to trade.

For instance, instead of just saying “buy in an uptrend,” you can further specify the conditions.  You can the change that condition and make it something like, “buy when the price breaks above the upper trendline of a triangle pattern, wherein an uptrend (with at least one higher swing high and higher swing low prior to the formation of the triangle) precedes a triangle on a 2-minute chart in the first two hours of the trading day.”

As you see,  that is much more specific, making it more testable when compared with an otherwise vague condition.