Hey there, intraday trader! Is your portfolio in dire need of a rescue? Chances are, the fundamentals aren’t quite cutting it. The stock market is an ever-changing game that requires traders to adapt their strategies to stay ahead of the competition—and you’re no exception.
If you’re tired of trying fundamental analysis only to find yourself falling behind, you may want to consider something else: technical analysis. For intraday traders, technical analysis is a powerful tool that can help you make better, faster decisions in the short term.
Here’s the scoop: unlike fundamental analysis, which relies on factors like earnings growth and macroeconomic factors, technical analysis focuses on charts and trends that illustrate what has happened in the past and offer educated guesses about what may happen in the future. In this article, I’m going to explain why intraday traders should abandon fundamentals and rely on technical analysis for their trading needs.
The Limitations of Fundamental Analysis for Intraday Trading
Are you an intraday trader who relies on fundamental analysis to make decisions? If so, you may have found yourself frustrated with the current market, wondering how to get your trading back on track. The answer lies in understanding why fundamental analysis is limited for intraday traders and why embracing technical analysis instead can help them get better results.
Fundamental analysis looks at the macroeconomic factors that affect a security’s price—but this longer-term approach doesn’t always work for intraday traders. Momentum and volatility can be too unpredictable for fundamental analysis to capture the nuances of a short-term trade. Additionally, because fundamentals operate more slowly, by the time a player has identified a tradeable opportunity, it may already be too late.
In contrast, technical analysis uses charting techniques to identify patterns in current trends that can offer more accurate views of market sentiment and patterns. Focusing on the short term instead of traditional economic fundamentals, it gives intraday traders a more reliable quick read on their options. Switching to technical analysis can provide valuable insight to quickly seize trading opportunities and avoid common mistakes that lead to costly losses.
Why Fundamentals Change Too Slowly for Intraday Timeframes
For young traders starting out in the stock market, fundamental analysis is often the first tool of choice. Fundamentals are key for long-term investing, but when it comes to trading intraday, they’re just not enough.
That’s because fundamental forces take longer to impact stock prices than intraday movements do. You could be sitting on a great buy with a fundamental setup that should result in a run-up, only to realize that the price may never get there in an intraday timeframe. It’s all about timing—with fundamentals, you simply don’t have the info you need to time your investments properly.
What’s worse, even if you do have prior knowledge of news and events likely to drive stock prices, you can’t always trust your predictions. The reality is that economic data releases and corporate news can have unpredictable impacts on stocks and other markets—meaning that your guesses as to how they play out could be way off the mark.
So for an intraday trader looking to make quick profits without relying on uncertain fundamentals? Technical analysis is really your best bet.
How Market Sentiment and Momentum Drive Intraday Price Action
The markets are incredibly dynamic and ever-changing. It’s not like the fundamentals of a company stay the same day in and day out — news breaks, opinion shifts, and intraday traders need to account for this. That’s why technical analysis is key for intraday traders, as it provides insight into market sentiment and momentum that can be used to time purchases and sales in a way that fundamental analysis can’t.
Market Sentiment
Market sentiment refers to the collective opinion of traders about the future direction of a security or asset class. Technical analysis tools such as MACD and RSI can be used to analyze price movements and give indications of market sentiment.
Momentum
Momentum is the rate at which a security’s price changes over time — this can be analyzed by watching for breakouts above resistance levels, or breaks below support levels. For example, if the price of a security breaks above its 200-day exponential moving average (EMA), that’s usually an indication that there is strong buying interest in the stock.
By using technical analysis tools such as MACD, RSI, breakouts above resistance levels, and other strategies, intraday traders can track market sentiment and momentum in real-time to get ahead of changes in prices over short periods of time — something that fundamental analysis cannot do.
The Power of Technical Analysis for Capturing Short-Term Price Moves
Do you know how fundamental analysis is great for finding stocks and determining their intrinsic value? Well, when you’re dealing with intraday trading, it’s just not that helpful. That’s where technical analysis comes in to save the day.
With technical analysis, you don’t have to wait around for earnings reports or economic announcements. Instead, you can see how the stock moves in the short term and exploit that knowledge to make more profitable trading decisions.
Supply and Demand
The basic theory behind technical analysis is that price movements are driven by supply and demand—so by understanding which way these forces are moving, you can predict future price movements. You can look at chart patterns and indicators like moving averages to measure the strength of supply and demand at any given time.
Timeframe is Everything
By analyzing stock charts at multiple intervals (intraday, weekly, monthly), intraday traders can identify short-term trends and take advantage of them. For example, if a chart starts to show an uptrend at a 5-minute interval but none at a 15-minute interval, then you know a trend is building up quickly — which means it might be a good time to buy.
Technical analysis is ideal for intraday traders because it allows them to be more agile when taking advantage of short-term market movements rather than waiting around for economic events or corporate reports to materialize as with fundamental analysis. And with the help of Financia’s advanced charting capabilities and algorithmic models, intraday traders can be sure they have the edge they need to make smart trading decisions.
Key Technical Indicators for Intraday Traders
In contrast to fundamental analysis, technical analysis is a core pillar for intraday traders. This type of trading requires a trader to make decisions very quickly and so using key technical indicators to make decisions can help you stay on top of the market and make informed decisions.
Using technical analysis, intraday traders focus on the price movements in the markets, rather than macroeconomic or financial news — they’re looking at patterns and signals which show whether an asset is likely to move up or down in price.
But there are a variety of indicators that can be used by intraday traders depending on the current market conditions. Here are some of the most popular ones:
- Moving Averages: smoothing out the volatile price changes with a simple mathematical calculation
- Momentum Indicators: gaging whether the rate of change in price has been positive or negative over a given period
- Relative Strength Index: measuring whether an asset is oversold or overbought based on how far it’s moved from its price ‘norm’
- Fibonacci Retracements: drawing out the ‘support’ and ‘resistance’ levels that may indicate when prices will reverse direction
- Bollinger Bands: setting boundaries above and below the market’s average based on standard deviation
- Ichimoku Cloud: using dynamic support and resistance levels (called clouds) as well as trend direction, momentum and more!
Using these indicators, an intraday trader who’s using technical analysis can determine when there might be an opportunity for buying low and selling high — without spending time trying to conduct complex research into macroeconomic events or financial news stories!
A Sample Intraday Trading Strategy Using Technical Analysis
As an intraday trader, why should you abandon fundamental analysis and look to technical analysis as the solution?
The simplest answer is that technical analysis is better for intraday trading because it will help you better capitalize on small market moves. Fundamental analysis is great for long-term investing, but it’s not very helpful when trying to capture a tiny move in price.
Why Technical Analysis Works for Intraday Trading
A sample intraday trading strategy might include a combination of technical indicators, including support and resistances, volume-based indicators and time-based indicators. For example, let’s say the market is currently below support on a 10-minute chart–you could then assume that the next 10 minutes will probably be bearish. This makes sense because prices tend to remain in their same pattern or range unless another fundamental event occurs to disrupt the pattern.
Additionally, if you add volume-based indicators like average true range (ATR) or time-based indicators like moving averages (MA) into your strategy mix, you can more accurately predict which way the market will go in the short term. With ATR as an example, if you see that a stock’s average true range is below its 20-day moving average, this might signal that volatility for the stock will increase shortly. Taken together with other factors like support and resistance levels on different time frames or a MACD crossover signal on an hourly chart, this information can give traders an edge over those who rely solely on fundamentals alone.
Conclusion
In conclusion, technical analysis is the best method for intraday traders to make quick profits. Fundamentals might help you understand what’s going on with the company, but the fast-paced intraday trading environment requires a more efficient analysis process. With technical analysis, you can identify patterns that reveal the likely direction a stock will move. Even better, you’ll be able to make faster decisions to capitalize on these moves.
If you’re trying to succeed in intraday trading, then the technical analysis is your friend. So leave fundamentals in the dust and rely on technical analysis to make the best use of your time and resources.
