Short-Term Analysis of the Daily Stock Market

Accurate short-term analysis of the daily stock market can enable you to make substantial profits. The vast majority of short-term traders will tell you they never stop learning, but they will also tell you that this ongoing education is built on a few core principles. Perfect these principles and you will be one step closer to financial freedom.

Technical Analysis

Short-term traders use technical analysis to help them decide when to enter and exit the markets. Technical analysis involves using previous price action to form predictions as to where price may travel in the future. There are numerous forms of technical analysis, but one of the most effective is support-and-resistance analysis. You should look for levels at which prices have reversed in the past, and mark them on your chart. When conducting short-term analysis you should draw these levels on either a daily chart or a four-hour chart.

Entering a Trade

Having identified possible levels of support and resistance on a daily or four-hour chart, you should then switch to a one-hour or 30-minute chart. You should enter your trade when a price breaks one of the support or resistance levels you have identified. If it breaks through a support level, you should enter a short trade. If price breaks through a resistance level, you should enter a long trade.

Exiting a Trade

You can again use the support-and-resistance levels you have identified to exit the trade. The levels represent levels at which a price has encountered a relatively even balance of buyers or sellers. You should assume that when a price reaches these levels again, it will probably encounter a similar situation. In light of this, you should place your profit target at these levels. If you are trading long you should place your profit target at the level of resistance above the one at which you entered the trade. If you are trading short you should place your profit target at the level of support below the one at which you entered the trade.

Risk Management

Short-term trading using daily and hourly charts can be extremely risky. Large buy or sell orders can move the price of the stock you are trading substantially, and this volatility can reduce your account capital quickly if you don't incorporate sound risk management principles into your strategy. When trading using technical analysis, you can protect your account using a stop loss. Place your stop loss just below the resistance level at which you have entered a long trade. Place it just above the support level at which you have entered a short trade.