Day trading for beginners can seem like a tall mountain to climb. Whether you’re looking to day trading Forex, the stock market, futures or E-minis, there’s a steep learning curve.
Trading can be a very rewarding profession, but the newbie must begin by understanding just that: Day trading is a profession and takes time and serious study to master. Even then, most people aren’t successful.
Today’s video on day trading for beginners shares with you a great technique for anyone. It can used for trading most any market that has professional traders participating. It’s a very basic technique, and that’s why I call it day trading for beginners.
Enjoy the video and please leave your comments below.
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Welcome to this video on day trading for beginners. First, notice that at the beginning of the day, we have the gap open. The E-minis go up a for about15, 20 minutes or so. Now, what we’re going to do is compare that with the advance/decline index.
The advance decline index symbol on my chart may not be the symbol that is used for your data provider. I am using Kinetic data here, so that’s the symbol for Kinetic data. And then I’ve got a 20 period simple moving average and I’ve got 2 minute charts as you can see.
THIS ISN’T A DAY TRADING FOR BEGINNERS “INDICATOR”
A common mistake is not realizing that the advance decline isn’t an indicator. That’s the first thing I want to say. To avoid any confusion, this is not something you can find in your list of indicators. It is an index, so it has a symbol. So just like a stock, for example, or if future’s contract. We’ll have a symbol. And in this case, E-minis here, it’s ES. Microsoft’s symbol is MSFT.
So the same thing here. This isn’t an indicator, it is actually an index that measures a statistic of the number of advancing issues versus declining issues. And issues mean basically equities or stocks. So how many are going up versus how many are going down at that time?
And it is something that I use a couple of different ways. First, let me show you the first way that I use it. And that is like this.
HOW TO USE THIS INDEX FOR DAY TRADING
In this chart, the E-minis are coming up at the open, but if you look at the advance decline index, it’s not going up, does not make a higher high. Whereas the E-mini does. That’s a warning to me saying, oh wait a minute, yeah we have a temporary little move up here on the E-mini, but I am not going to trust that. This is contradicting the advance decline index and therefore this tends to be more correct than the individual stock or futures contract that you are trading. I’m normally looking for this to win out between the two of them. This is going sideways and this one’s going up. So looking to take this short.
Now let me say one other thing here before we get carried away with this. This is not something that you use alone. In fact there’s nothing that you use alone. Nothing use in isolation. It would be part of your trading methodology. One part of your trading methodology. Alright, so let’s get that very clear.
AN EXAMPLE OF HOW TO USE THE INDEX FOR DAY TRADERS
Alright so let’s look at another way that we use this. Actually it’s the same way but look at it from a different perspective. You could call this a divergence. But the advance decline line goes up here but look again we have a higher high on the E-minis. Whereas we just have an equal high, essentially the advanced decline. And so therefore again that showing that this move up is moving up on weakness.
The Advance/Decline line is measuring what’s going on internally in the market. So if I was wrong here, I’d be thinking, oh you know what, I think, I’ll just get out. And identify other indications, other reasons to assure it, I may actually even go even short, and be able to get in early. So that’s the number 1 way to use it is these divergences.
A SECOND EXAMPLE
Here’s a second way that I use this. Here’s the 20 period simple moving average. And I put it on the E-minis. We have 20 period simple moving average on both of them. Here’s what interesting. The idea is basically to trade in the direction of the 20 period simple moving average on the advanced decline index.
For example, let’s compare here and here. A lot of times this will be the same. So here we are below, price actions below the 20 period simple moving average, and price is moving down. Now we get an identical move here, okay that’s great. Now here’s where we get something different though.
So here if you look at this section, and the E-minis, price gets below the 20 period simple moving average. But not so on the advanced decline index, it stays above it. Relative to the moving average, it stays above it. Basically we’re looking to go long when the advanced decline line is above the 20 SMA and short when it gets below it. And we also are looking at the angle. So we are able to stay into this all the way to right here, across or below it. And look what kind of reward that gives you.
By the way, as a final tip, this can be used for trailing stops as well.
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