When viewed on daily or weekly charts, moving averages are at best a secondary indicator when assessing the overall trend strength of a security. For the intraday charting used in day trading, the oscillators we will discuss next are better at showing moving average divergence.

Technical analysis has posed a challenge to economic analysis in its ability to predict exchange rates. As a result, considerable research has been undertaken by the economic community on how technical analysis works, both in practice and in theory. It is not for here to go through this research or literature in detail. Rather, we look at one such study as symptomatic of a general inquiry by the economics profession into the workings of technical analysis.

Momentum and rate of change oscillators have similar uses for finding short-term changes in direction. They are essentially the same tool, except that rate of change oscillators give readings in percentage form, whereas momentum oscillators give readings in point form. Moving average oscillators are best for trading with a trend.

How it works?

Volume is one of the most important indicators traders use to 'predict future price direction. The ability to read volume signals will be one of the handiest tools in your toolbox.

Have you ever gone to a party where few people showed up? Not very exciting, was it? In the same way, when you're buying a stock, you don't want to be the only person at the party! You want lots of people to attend so that the stock skyrockets right out of the gate (breakout).

Think of high volume as energy being directed at a stock. This energy may be positive or negative.

Can you hear your dentist telling you, „Only floss the teeth you want to keep?“ Makes sense. Keeping your teeth extra-clean means they'll stay healthier, longer. When you water and fertilize a plant, it flourishes happily. If you don't, it withers. During the weeks that you deposit money into your checking account, you have the funds to pay your bills. No deposit, no bill paying. Conclusion: Positive energy directed at an entity-huan or otherwise-causes it to flourish. Low or negative energy causes it to stagnate and atrophy.

Stocks, especially, respond to energy. Human energy translates into volume, or the number of shares traded in a specified period of time. By now you've spotted the volume spikes that run along the bottom of the charts we've observed. The spike below the candlestick represents the total number of shares traded during that session.