Chapter 5: Market direction for day trading-Should you buy or should you sell?

One of the biggest challenges for a day trader is to determine whether to sell or buy on a particular trading session. So if you ever got caught in this dilemma don’t worry. We will discuss a few strategies used to identify whether you should buy or sell on any given day.

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Advance And Decline Ratio

So market direction for a day can simply be determined by looking at your advances and decline. If advances are way higher than declines, its a bullish market and vice-versa. So on any given trading day, if the decline is significantly higher than advances it’s a bearish day and you should look for selling opportunities on bearish days.

But on many trading days, the market moves sideways without giving good momentum for day traders. Look at the below image which shows you a very close advance and decline.

Advances and decline ratio- Neutral market direction

The difference between advances and declines are not significant. And when the difference between advance and decline ratio is not significant, it’s not a clear direction. The market can move in sideways for some time and then pick up momentum in one direction.

So during a sideways market, try to place small trades as chances of getting stopped out is higher in a sideways trend. If you are completely new to day trading, kindly take your time to understand the market direction with the above-mentioned method. It will take a little experience to understand the direction of the day.

Conclusion

So trade with small capital and place low-risk trades. Once you start understanding market direction, its time to pick good momentum stocks for day trading. So head over to our Chapter 6- Stock picking and day trading mistakes to avoid, where you will learn the professional way of stock picking for day trading and some of the simple mistakes done by day traders to avoid.

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