WHAT ARE THE MOST USEFUL TECHNICAL INDICATIRS FOR SHORT-TERM STOCK TRADING?
There are plenty of technical analysis tools around. MACD, Momemtum. RSI, Bollinger Bands, Moving Averages, Fabbionachi retracements etc. Which of these are actually followed by the professionals? Which of these really work consistently over a long period of time? Have Investors/traders made serious money by using technical analysis?
Answers
419 points
TeachMeMore answered one year ago …
I personally use technical indicators as more of a tool than a system.
I make sure the fundamentals are right first and then use technicals to help me pick my buy point. If a stock is clearly trending downward there's no way I'll step in and buy it no matter how attractive the price is - no sense in trying to catch a falling dagger.
I'm sure there are plenty of people in this community (EthanR and ChaosNantuko come to mind) who would say that you can effectively use technical analysis on its own, but I'm just not comfortable with that.
As for which indicators I find to be the most important: I like to look at a sector and stock specific RSI as well as how close the stock is to its 20 - 50 moving averages (looking for oversold or overbought situations).
265 points
MaverickInvestor answered one year ago …
It very much depends on your target market, your timescales, your risk profile and so on. However, here's some of the tools and techniques I've used with some success over the years.
1. I like to draw in trend lines and lines of support and resistance (which are sometimes the same thing, of course). Day-trading forex, I look for a confirmed break through one of these lines - that is, at least five pips beyond the line on a 1- or 3-minute chart, depending on the pairing, and then the next candle going beyond the wick of the breakout candle. That's my signal to trade.
2. Crossing moving averages is fairly reliable. You'll see the longer term one, maybe the 200-day, flat but rising slightly, and the shorter term one, say the 50-day, sweeping up (or down) to cross it. That cross can often signal a market move in the direction of the shorter term MA.
3. I use momentum trading for day trading the FTSE. I want to see three 5-minute candles of the same colour, and I'll trade when the fourth goes beyond the furthest extend of the third.
4. For stocks, I always have volume showing, and avoid trading on low-volume days.
5. Back to forex, I tend to have Fibonaci lines drawn in, too, and keep an eye on them.
I would add three important observations here.
First, never rely on just one trade signal. I try to find as many reasons as I can to get in on a trade. I also actively look for reasons not to trade, weigh them up against one another and act (or not!) on the one with the most reasons.
Second, there are, as you say, hundreds of indicators. Don't use too many and confuse yourself! Play around and paper trade the ones you like the most, or understand the best, until you get comfortable with what works for you.
Finally, technical trading works partly because so many traders - corporate and individuals - are watching the same charts, and the same indicators as you are! If there's a clear line of support, thousands of other people can see it, too. If the price breaks through that support, thousands of other people see that happening at the same time you do. And, if it's a confirmed break, thousands of people will sell into the break and force the price lower. There's definitely an element of self-fulfilling prophecy in chart work!
Oh, and there are technical traders who make serious money. There's a question here I've seen asking who's the world's best technical trader ever - I can't recall the answer, but there is one! Go check it out.
4085 points
EthanR answered one year ago …
For a detailed account of one system that we used to make money from technical indicators, please see the blog called "A Systematic Approach to Shorting Stocks" on this site. Primarily we used RSI and stochastics. Fundamentals can not really help you to successfully trade short term. They are much better used for long term investing. Technical analysis can work very well for short term trading, but it's only as good as the human being who employs it. Human emotions like greed or fear often superceed the best indicators. To be a successful trader, one has to be able to turn off the emotions which can harm your trading. Good luck.
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108 points
slickchilli answered one year ago …
When I think of short-term trading, I don't think of it according to the tax man, I think about how to use a regular brokerage account as the best proxy for an up-to-the-minute trader's screens. So imagine buying to sell over an intra-day cycle of one to 21 days. Ways to analyze:
1. The news plus blogs and timing. The technical part comes in with your own assessment of how much the positive or negative buzz and announcements surrounding a stock is likely to affect the stock's price. Not necessarily momentum, but trying to figure out how many people may act on what information - consider the outlets that are streaming the info. Not sure what you're looking for in terms of gains. I look for a minimum of 7% upside for very short-term when I'm bored, hoping for 12.
2. Volume. High volume in a timespan of minutes will push the stock one direction, potentially far enough to reach your target. If it is inexplicable, take the profits.
3a. For established but not necessarily value stocks, follow 50 day MA and MFI, which accounts for volume. Be careful with MA when you see indecision candles.
3b. For volatile or penny stocks with about even volume, use MACD and not stochastics.
