What’s up everyone? Ross here from Warrior Trading. So in this video, I’m going to talk to you about the 4 indicators every beginner trader should have on their charts.
Number one, you should be using candlestick charts. If you’re not already using candlestick charts, step back, slow down. You got to start using them. If you’re using line charts, using bar charts, they are not going to cut it for day trading. You’ve got to be using candlestick charts.
A candlestick gives you four pieces of information: the open, the close, the high and the low. So those four pieces of information, depending on what they are, drastically change the shape of the candle and the shape of the candle communicates market sentiment. So candlestick charts are very important in helping you understand market sentiment.
Now, really, that’s the most important thing because the candlestick charts communicate so much that even if you don’t have these other indicators on your charts, you’re going to learn so much just from the candlestick shapes. You can have a pretty good sense of a stock that’s trending or is beginning to reverse.
All right. Now, in terms of indicators, the first is the volume weighted average price, and we call it VWAP. So VWAP, volume weighted average price gives you the average price of a stock over the course of the day, including volume. So let’s say a stock traded a hundred thousand shares at $8 and then a million shares at $9. Just a simple average, without including volume, would say, oh, it traded at eight and it traded at nine. The average is 8.50.
But when you factor in the volume, you’d realize that the average volume weighted is actually much, much higher. And that’s important because volume tells a big story. If there’s a lot of volume at a particular price, it can show that there was a lot of support there, or there was a lot of resistance there.
And so I like to look at the volume weighted average price, because it is the equilibrium point of a stock during the day. It is only an intraday indicator. It doesn’t work on daily charts. So just intraday, but it is very important, and I find it very helpful.
As a general rule of thumb, if you’re a long-biased trader, you typically don’t want to be buying below the volume weighted average price. Now, you could say, “Well, if I bought way below the average price, I’m buying low.” Okay, but for most momentum traders, we’re looking for something that’s trending up, right? So we want to see something trending up, trending up, trending up, and we want to be buying on these dips. And that’s going to be… If this is the volume weighted average price, those are all going to be above the VWAP.
If we start having a stock that starts trending down like this, the trend is down. Buying it below VWAP, this is clearly telling you that it’s in control by the sellers. Above VWAP, it’s in control by the buyers or the bulls in the market. So if you’re a bullish trader, typically you want to be trading stocks that are above VWAP.
If you’re a bearish short seller, you may be more interested in trading stocks that are below VWAP, unless you’re doing countertrend trading, you’re contrarian and you’re shorting tops, so you’re trying to short tops for the ride back down, or you’re trying to buy bottoms for the move back up.
The problem with that and the reason that’s not a really good strategy for beginners is because you can find yourself catching, falling knives, trying to get in too soon and it keeps selling, or you could simply find yourself shortening an extremely strong stock as it goes higher and higher and higher. So for most beginner traders, it makes more sense to understand the trend and then ride that momentum, whether it’s long or short.
So VWAP helps you understand whether a stock generally is bullish or bearish, and then the candlesticks help you better understand market sentiment. And the candlesticks are where we’re going to be looking for the patterns right in this area here to identify, is this the high of day signified perhaps by a topping tail or a shooting star candle, or is this simply a peak and a pullback for the next leg up?
The third indicator or the third item here, the second indicator, MAs. That stands for moving averages. Now, I am a big fan of using exponential moving averages. Kind of like the volume weighted average price, an exponential moving average will wait a more recent price action heavier. So the line curves faster as a stock starts moving up quickly.
But a moving average is simply the average price of a stock over a period of time, and you can set different time periods. You can a five-period moving average, a 10-period, a 20-period. I mean, you could set whatever period you want. The most common, 10, 20, 50, 100 and 200 moving averages.
I always use the 9, the 20 and 200. The 9 is just a little tighter than the 10, which is popular. So I feel like the 9 gives me a little bit of an advantage. The 20, you could say, well, you go to the 19, and I guess you could, but I like the 20. And the 200 is respected and used by so many traders. I like to see what they’re looking at. So I use the 9, the 20 and the 200, and I use that on every timeframe. I use it on my daily chart. I use it on my five-minute chart. I use it on my one-minute chart. Those are the moving averages that I look at.
Now, something that you can also look at, and this is a little complicated, but some traders, on their one-minute chart, may also want to see the 200-moving average. And so what you can do is you can overlay the daily 200 on your one-minute. That way, you can see what it is, or you could overlay the five-minute 20 on your one-minute.
And so you could do overlays and things like that, if you’re primarily on the one-minute, but you want to make sure you don’t lose sight of daily moving averages, because what we often see, especially with stocks that have been beaten up for a long time, we’ll often see that they’ve been selling off on the daily.
So they’ve been selling off for a long time and they start to come back up. And this is a pattern that we really like to trade, that curling back up right down here off the low. Support on the daily is very close by, so you’ve got good risk reward, but it’ll run into resistance at the 200 moving average. So you’ve got to make sure you’re not buying right into this no-brainer resistance level. And if you don’t have that line on your chart and you don’t see it, you might be buying where smarter traders are selling and that’s a problem. So moving averages.
And then number four, volume bars. Volume bars, along with the shape of the candles, tell such a huge story you can’t not have them. So if we have a stock, for instance, that’s been moving up, moving up, moving up, moving up, moving up like this, and then right here, we have this candle right here. So this candle has a long upper candle whip like that. This is a reversal indicator.
However, you would typically expect a volume bar to look like this. The volume’s increasing, increasing, increasing. If this volume was super low here, you would think, oh, okay, well, maybe that’s actually not going to be a reversal because it’s [inaudible 00:07:33] volume. But if it’s on high volume, we would call that a volume top, a reversal indicator. It’s a combination of reading this candlestick and reading this volume bar that tells us it’s a volume top.
So again, you want to try to keep it simple. Some traders will put dozens of indicators on their charts, and I’m telling you as someone who did that, it’s not a good idea. Here’s what happens. You start looking at these indicators, and I don’t want to speak for you, but this is what happened for me. What happened for me was I started to look at these indicators and I felt that these indicators could give me a red light or green light.
For instance, like black and white rules, anytime the 9 moving average crosses the 20, buy. And every time it crosses back down, sell. And why was I looking for that? I was looking for a very simple buy-and-sell alerts because trading is really hard. And I wanted so badly just to find some other system that is not just requires me to be a really good trader, to tell me when to buy and sell.
And this became, for a while, for me, for over a year, a search for what I was calling the holy grail, because if I could find this, all I needed to do was follow the rules of this indicator every single day and I could make money. And unfortunately, I didn’t find that that was the case. I was not able to find success with that, and I don’t believe that there is a holy grail indicator that is right 100% of the time. And the markets change.
However, if you want to learn a beginner strategy, one that I use and one that I do find is very consistent for me, click the video. I’m going to put a video on the top corner of this video right here. Click that. It’s on day trading gappers. I think you should check it out because one of the strategies that works really well for me is focusing on the top one or two leading percentage gainers in the entire market each day and trading those as aggressively as I can.
Not every day there’s going to be in a quality gapper, but more days, we have one than we don’t. And so even if you can only trade, if you’re only trading gap strategy, even if you can only trade that three days a week, or even just two days a week, you can still do quite well, but it’s only once you’ve proven that you understand the strategy. Make sure you trade in a simulator. Practice in a simulator before you put real money on the line. Take it slow. All right?
I hope this has been helpful. I’ve walked you through a few of the basic. Oh, and I’ll just put that back up, volume bars. A few of the, I would say, absolutely mandatory indicators that every beginner trader should be using. And if you’re using alternative ones like RSI or MACD or stochastics or things like that, that’s fine. I don’t use them in my trading. I’m a seven-figure trader and I don’t use them, but it doesn’t mean that there aren’t other traders out there that do find them helpful. So you got to find what works for you. All right. So make sure you check out that video on gap trading, and I’ll see you guys for the next episode.
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