| If you trade stocks online using a technical stock | | | | - Lowest Price in last 30 bars was 23 bars ago (on |
| chart (such as a bar chart or Candlestick chart), | | | | 5-minute time frame) at $24.32 |
| chances are that you have heard about day trading | | | | - 14-Period RSI 23 bars ago had a value of 21.00 |
| stock strategies using "divergences." A divergence is | | | | Now, if the last bar made a new low at $24.20 (12 |
| when you see prices making "relative" new highs or | | | | cents lower than the previous low), look at the RSI |
| lows, but the corresponding indicator is not following | | | | indicator. If it has a value of 29.50 you will note that |
| the same action. An example might be if a certain | | | | the indicator is actually HIGHER than it was at the |
| stock made a 12-month low 30 days ago, but the | | | | previous low price, even though the stock's price is |
| technical indicator you use actually shows that the | | | | now LOWER. This is the "positive divergence." Be |
| indicator now has a higher value than the value 30 | | | | alert for a possible reversal if market conditions are |
| days ago. In this instance there would be a | | | | otherwise normal, or at least be careful on any short |
| divergence between the stock price's action and the | | | | positions you may have in symbol ABCXYZ. |
| indicator's action. | | | | To get EXTRA confirmation, consider looking at the |
| Many day trading systems incorporate divergences | | | | 30 minute chart. If you notice another "positive |
| into their calculations, but many fail to get the extra | | | | divergence" on the 30 minute chart (as well as the 5 |
| confirmation from another time frame. Since you | | | | minute chart), then consider your actions accordingly. |
| should never trade live money without first doing | | | | Incorporate this second, longer time frame |
| some form of testing, consider adding in an extra | | | | divergence as part of a new strategy to be |
| condition to your strategy when back-testing: have a | | | | back-tested. You may find that filtering divergences |
| larger time frame also show signs of a divergence in | | | | by having a second divergence may help you |
| the same direction. The technical indicators you would | | | | improve your trading results. As always, before |
| use are oscillators, and the most common ones are | | | | committing any money be sure to back-test on the |
| Stochastics, Relative Strength Index (RSI), and | | | | symbols (or universe of symbols) which you |
| Moving Average Convergence-Divergence (MACD). | | | | anticipate that you will trade. |
| Consider looking at a time frame of 5 to 6 times | | | | If you have any questions at all, speak with a |
| greater than your intraday trading time frame. | | | | competent professional financial advisor who can help |
| Let's use an example for this day trading stock tip | | | | you with your trading strategies. Remember that in all |
| lesson: | | | | trading and investing, especially day trading, you risk |
| - SYMBOL = ABCXYZ (not a real symbol) | | | | losing significant amounts of money. Follow all |
| - Trading Time Frame = 5 minute chart | | | | standard financial disclaimers and spend significant |
| - Longer Time Frame = 30 minute chart (6 x the | | | | time on your risk and money management |
| Trading Time Frame length) | | | | techniques. |