How to Read Intraday Charts

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Intraday trading charts are popular among day traders because they help them track the movement of asset prices, and make trades accordingly. There are multiple types of day trading charts investors use, the most common being bar charts, candlestick charts, and line charts. However, the information they indicate is essentially the same and only changes in the way it is displayed. Every chart consists of certain indicators that allow traders to assess this information and make better decisions. Some of the most useful data structures provided by intraday trading indicators include:

  • Past and present up-to-the-minute price action
  • Momentum [or the lack thereof] in the market
  • Profit potential due to stock market volatility
  • Stock popularity through trading volume
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Now that you know what trading indicators do and why they are important, let’s take a look at some technical indicators that will assist you in reading the charts and trading with confidence.

Relative Strength Index [RSI]

Considered one of the best indicators for intraday trading, RSI denotes momentum by comparing the share price’s recent gains and losses. It follows the most famous investment concept of all time: buy low, sell high. By looking at the index, you can tell when a security is overbought or oversold. Typically, the 0 line indicates oversold, while the 100 line indicates overbought. Traditional interpretation dictates that when the RSI value is 70 or above, the security is becoming overvalued and is likely to go down.

Conversely, an RSI indication of 30 or below means the stock is undervalued and expected to rise. Most traders are recommended by analysts to sell when RSI touches 70 and buy when it falls to 30. However, make sure to analyze the RSI history and market volatility before making any trade.

Moving Averages

Moving Averages, or Daily Moving Averages [DMA], is a line on the chart that connects the average closing price of a security over a specific amount of time. It is advisable to look out for longer duration because the moving average becomes more accurate and reliable over time.

This indicator is the most-widely used because it provides a clearer view of the volatile stock market and helps traders determine the underlying trend of the price movement. Moving averages also maps out trend reversals and stop loss points. The rule most traders follow is to buy when the moving average is below the candlestick chart and sell when it is above.

Bollinger Bands

This indicator works on the same principle as Moving Averages, except with three lines instead of one. While the middle line is the 20-day Simple Moving Average [SMA], the upper is +2 standard deviation and the lower is -2 standard deviation. The general strategy is that when the price is hovering close to the upper limit, the security is expensive and will come down to the average. This is when it should be sold. And when it is near the lower band, it is cheap and will potentially move up. This is when it should be bought.

Using these indicators can make it easier for traders to maximize their returns and minimize risks. Interestingly, different traders interpret intraday trading charts in different ways, often using a combination of two to make a more precise judgement. So, while they are excellent methods of evaluating market trends and sentiments, you should use them in a way you deem fit.