Traders rely on statistical tools in to predict intraday charts. With the rise of various electronic trading applications, investors are presented with sophisticated analytical tools that guide their decisions to buy or sell stock. They can combine news releases about company stock along with historical price trends and intraday patterns of price charts to make trade decisions.
A company stock can rally on breaking news. Measuring momentum is important to traders who want to buy a stock early at a cheaper price, before the rest of the market bids up the price. The moving average convergence-divergence is a common indicator used to track the momentum on a stock. This is a statistical graph illustrated in many price chart tools. It compares the 12-day price changes to the previous 26 days. If the 12-day price trend is rising faster, a bullish momentum is indicated. If the 12-day price trend is slower than the previous 26 days, it can indicate a bearish momentum.
Not all price trends are clear enough to predict momentum on a stock. Other times, traders turn to strength tests to understand the likelihood that a price rise will persist. For this, some turn to the relative strength index. The RSI tests strength by analyzing whether the stock is overbought or oversold. In most price chart applications that offer the RSI tool, the RSI index is normalized between zero and 100. An RSI above 70 can signal a stock that is overbought in the stock market. At that point, the stock is likely to revert and decline. An RSI of 30 signals an oversold stock whose price is likely to turn around and rise again.
Bollinger bands are another statistical trend tool that chartists use to predict intraday price charts. It, too, comes with many electronic trading softwares. Bollinger bands indicate the upper and lower thresholds at which the current price is likely to fluctuate. It uses the price trend from the past 20 days to make that prediction. The upper and lower bands are only estimates, but they are indicative of price points that can infer a bullish or bearish trend if crossed.
Candle volume charts are among the easiest to use for predicting intraday price fluctuations. These charts use the capability of both the candlestick price chart and the volume chart. The candlestick chart shows the day high, the day low, the opening price and the closing price for each of the previous trading days. Volume stats are added to the candlestick chart to tell traders of the pressure behind every price tick. The higher the volume, the more it impacts the price of the stock.
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