Last updated on Nov 26, 2023
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Moving Averages
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RSI and Stochastic
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MACD and Bollinger Bands
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Candlestick Patterns
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Here’s what else to consider
Technical analysis (TA) is the practice of using historical price patterns, trends, and indicators to forecast future market movements and identify trading opportunities. Short-term trading involves holding positions for minutes, hours, or days, and requires fast and accurate analysis of market conditions and signals. In this article, we will discuss some of the most reliable TA indicators for short-term trading, and how to use them effectively.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 226x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought…
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- MyBillion Inc Trader/Trainer/Serial Entrepreneur
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1 Moving Averages
Moving averages (MAs) are one of the most widely used TA indicators, as they smooth out price fluctuations and show the direction and strength of the trend. There are different types of MAs, such as simple, exponential, or weighted, and they can be applied to different time frames, such as daily, hourly, or 15-minute. Short-term traders can use MAs to identify support and resistance levels, trend reversals, and crossovers. For example, a bullish crossover occurs when a shorter-term MA crosses above a longer-term MA, indicating an uptrend. A bearish crossover occurs when the opposite happens, indicating a downtrend.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 226x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Moving averages, a good trend indicator which help to identify trend direction, equally capable of giving entry and exit signals through the dead crossing and golden crossing of more than one moving average.Spot low volatility in price with clustered moving averages and high volatility with expanded moving averages. Simple or exponential type of MA is a great too to spot trading opportunities on lower time frame like M5, M15 and M30 minutes. targeting 15pips to 25pips on average
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Exponential moving averages (EMAs) are a powerful instrument for short-term trading, offering a more reliable reading to short-term price movements. Other than helping to understand the actual trend in different timeframes, EMAs can be used for determining support and resistance levels. It’s important to choose the right settings and focus on what is working the best for each individuals trader, by backtesting the length of the EMA on different timeframes. Not always the mainstream settings are the best choice. My advice when trading with EMAs is to confront price levels on different times frames, such as with 5,15,30,60 minutes charts, and confirm even on higher time frames, such as the 4h, daily or weekly charts.
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2 RSI and Stochastic
Relative Strength Index (RSI) and Stochastic are two popular oscillators that measure the momentum and overbought/oversold conditions of the market. They range from 0 to 100, and typically have thresholds of 30 and 70 to indicate oversold and overbought levels, respectively. Short-term traders can use RSI and Stochastic to spot divergences, convergences, and crossover signals. For example, a bullish divergence occurs when the price makes a lower low, but the oscillator makes a higher low, suggesting a possible reversal. A bearish divergence occurs when the opposite happens, suggesting a possible downtrend.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 226x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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RSI and Stochastic are momentum indicators that are very popular among technical analysts gauging the price momentum in the market.RSI is calibrated on a scale of 0-100. Price at RSI zone <30 is a buy opportunity awaiting confirmation. Price at RSI zone >70 is a buy opportunity awaiting confirmation.RSI and Stochastic can both be used to identify divergence in the market and take an advantage of that when found on H1 for example and go to lower timeframe like M15 to look for a more refine and suitable entry for a buy or sell opportunity.
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3 MACD and Bollinger Bands
Moving Average Convergence Divergence (MACD) and Bollinger Bands are two other common TA indicators that can help short-term traders identify trends, momentum, and volatility. MACD consists of two lines: the MACD line, which is the difference between two MAs, and the signal line, which is another MA of the MACD line. The histogram shows the distance between the two lines. Short-term traders can use MACD to spot crossovers, convergences, and divergences. For example, a bullish crossover occurs when the MACD line crosses above the signal line, indicating an uptrend. A bearish crossover occurs when the opposite happens, indicating a downtrend. Bollinger Bands consist of three lines: the middle band, which is an MA of the price, and the upper and lower bands, which are standard deviations of the price. Short-term traders can use Bollinger Bands to gauge the volatility and range of the market. For example, when the bands are wide, it indicates high volatility and potential trend changes. When the bands are narrow, it indicates low volatility and potential breakouts.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 226x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Trend of a market is important to know, the momentum sustaining the volatility in that trend is also very important. The two common indicators to combine for this are referred to as MACD and BB.MACD's components are:- Macd main line- Macd signal line- Baseline- HistogramWhere the crossing of mainline and signal above/below baseline in support of the direction of the histogram signals a buy or sell opportunity. M30 time frame this works for intraday opportunity. 20 to 30 pips.Bollinger Bands with standard deviation 20 as on default helps a trader to know when to take a short term market advantage as the bands represent dynamic support and resistance.Watch out for reactions of candlesticks formation in the upper & lower band of BB.
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4 Candlestick Patterns
Candlestick patterns are graphical representations of price movements that can reveal the psychology and sentiment of the market. They consist of four elements: the open, high, low, and close prices of a period. Depending on the color and shape of the candlestick, they can indicate bullish or bearish signals, reversals or continuations, and strength or weakness. Short-term traders can use candlestick patterns to confirm or contradict other TA indicators, and to spot entry and exit points. For example, a bullish engulfing pattern occurs when a green candlestick completely covers a previous red candlestick, indicating a strong buying pressure and a possible uptrend. A bearish engulfing pattern occurs when the opposite happens, indicating a strong selling pressure and a possible downtrend.
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 226x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Japanese candlesticks surely tell a price story and it is interpretable to technical analysts with sound price action analytical skill.The type of candlesticks formation at resistance or support zone validates a point in the coming opportunity, either a buy or a sell.Identify the candlesticks pattern and what they stand for, then it is easier to take an advantage of that in the market be it a continuation candle patterns or reversal candle patterns (bearish harami for example).
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- Aditya G. Private Wealth / Fiduciary / Investor --I fix money problems and multiply wealth.
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This is extremely powerful because it's not only visually appealing, but it gives out a ton of information. If you are a serious trader, learning Japanese candlesticks is a must.
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5 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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- Yemmie Olaleye (CMSA®,FMVA®,FTIP™) ✪ 🎖️ 226x LinkedIn Top Voice💡 🔸 Financial Market Analyst/Educator🔸 Executive Coach🔸Futurist🔸Thought Leader🔸FPWM™🔸BIDA®🔸CBCA®🔸PMEC🔸BMEC🔸ESGP🔸 Fellow @ African Leadership Group
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Short term trades opportunities are to be caught on a small time frame and of course the market main trend is on higher time frame, so a trader should know which direction is the main trend, so he can calculate his risk properly incase he would be acting contrarian trader on a lower time frame with any of the above indicators.Advised to trade the higher time frame trend direction on a lower time frame to avoid short term reversal inducement in the market.
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- MyBillion Inc Trader/Trainer/Serial Entrepreneur
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Ichimoku is the best indicator for any timeframe..Ichimoku titbitsLong - when your past future has become past now and below cmp...Think
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- Aditya G. Private Wealth / Fiduciary / Investor --I fix money problems and multiply wealth.
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You can't go wrong with Martin Pring's books for learning and going deep into the weeds of technical analysis. Highly recommended.
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