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Day Trading Tips

The Market

The overall trend of the market will determine how a day trader should proceed. When the market is strong, experts advise that a day trader take a more aggressive approach. Market trends are among the most important factors that should be evaluated. To determine these trends, successful day traders use market indicators. These market indicators are useful when used in conjunction with other trading knowledge and should never be the sole factor upon which a trading decision is based. Experts urge day traders to remember that these market indicators are only measurements taken at a given time and are subject to the same fluctuations and reversals as the actual market. There is no specific market indicator that is the end all and be all and experts advise day traders to examine all of the indicators available and choose the one that is presumed to be the best indicator for that particular stock.

Market Indicators

Market indicators are often distributed via the television, most commonly on CNBC, or by real time data proving services. The S&P 500 is the most commonly used market indicator as it relies on the stock price of the 500 largest listed companies. Generally, if the S&P is rising then the market will follow and conversely if the S&P is falling then the market will also fall. S&P futures trades 24 hours a day. This allows a day trader to assess market trends before the opening bell and plan accordingly.

Advance/Decline Ratio

This is a measure of the market momentum. The ratio relies on the number of stocks that are up versus the number of stocks that are down at any given point during the trading day. This ratio will help day traders to determine if the overall market is on an upswing or on a decline.

TICK

This system relies on the price change in a stock from its last trade. A stock that has declined in price since its last trade is given a minus tick value while a stock that has increases its value is given a plus tick value. From the tick values of all the stocks that are being traded, an overall TICK value can be determined. A tick value of plus 500 means that the market is bullish, and a TICK value of minus 500 shows that the market’s momentum is on a downward swing.

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