DAYTRADING
Gauging The Market Winds
Intraday Market Forecasting
by Lee Leibfarth
How do you find high-probability daytrading setups fast?Successful daytraders must have the ability to react as soon as favorable conditions in the market develop. Being able to identify high-probability conditions requires a high level of situational awareness that involves many different charts, indicators, and data sources. I will discuss a method of quickly and accurately sifting through this information in order to spot high-probability daytrading setups as soon as they occur.
Much like a weather forecast, trading decisions are based on probabilities, not certainties. Even with the ideal combination of conditions, there is still a level of unpredictability in both the markets and the weather. One way to think of intraday market analysis is to compare it with short-term weather forecasting.
While it is possible to find a weather outlook for a region, it may be difficult (or impossible) to find a report providing a detailed minute-by-minute outlook for an exact location. In this way, the technical analysis needed for daytrading requires an individual approach that forces traders to become their own meteorologists. The first and most important skill to develop for this style of forecasting is a high level of awareness for what is happening in the immediate area at the moment: right here, right now. This may include knowing the current speed and direction of the wind, the barometric pressure, the temperature, and so on. Understanding the relationship of these factors will allow a high-probability, short-term forecast for the next few minutes and possibly the rest of the day. Remember, for the purposes of intraday trading, it doesn't really matter what is going to happen in the extended forecast. Developing a heightened awareness of the current conditions will allow the most accurate short-term forecasting for a particular area.
In addition, it is important to know about any extreme conditions that may be heading into the area. This type of volatility can quickly turn a beautiful, sunny day into a treacherous, stormy one. Being mindful of the condition of the overall markets may help spot the onset of this type of violent, unpredictable market activity. Keeping this in mind, experienced meteorologists and daytraders share the ability to make high-probability forecasts using data from multiple sources of information.
...Continued in the August issue of Technical Analysis of STOCKS & COMMODITIES
Excerpted from an article originally published in the August 2006 issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright 2006, Technical Analysis, Inc.
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