Intraday trading requires speed, precision, and disciplined execution. Indicators help traders to interpret the price data, identify trends, measure momentum, and manage risk more effectively.
Indicators increases probability of a successful trade but do not eliminate the risk. It’s important to understand that no indicator guarantees success. We will explore some of the best technical indicators that are used by professional traders.
You first need to understand what is intraday trading. In intraday trading, traders are obligated to open and close the position in the same trading session. Due to this, traders must make quick decisions based on real-time price movements.
The main goal of intraday trading is to capture small price movements during the day. Traders take advantage of short-term volatility in stocks, indices, commodities, or currencies to generate profits.
Now let’s get to the indicator. The technical indicators are the mathematical calculations based on volume, price, and other available data, which help traders analyse market behaviour and make informed trading decisions. These indicators are broadly categorised into:
Trend indicators – These indicators show overall market direction. It includes moving averages, MACD, Supertrend, etc.
Momentum indicators – The momentum indicators measure the rate of speed change of price movements to determine trend strength. It includes the Relative Strength Index (RSI), Rate of Change (ROC), etc.
Volume indicators – It shows participation level by measuring the number of shares or contracts traded during a specific timeframe. It is used as a confirmation tool for determining trend strength. Volume, On-Balance Volume (OBV), Money Flow Index (MFI), etc., are used as volume indicators.
Volatility indicators – It determines the degree of price fluctuation in the underlying asset over a specific period. For example, Bollinger bands, Volatility Index, etc.
Although indicators help and increase the probability, overloading charts with too many tools often leads to confusion. You should use two to three complementary indicators for confirmation.
Here are the top technical indicators for intraday traders:
Moving averages are used to determine overall trend direction. The Simple Moving Average (SMA) calculates the simple average over a specific period of time, and the Exponential Moving Average (EMA) calculates the average price by giving more weight to recent prices.
Intraday traders mostly use EMAs like 9, 20, and 50, as they respond faster to price changes. If the price is trading above the EMA line represents bullish bias, while a price trading below the EMA line represents bearish bias.
The Relative Strength Index (RSI) is a momentum oscillator that changes between 0 and 100. It measures velocity and the magnitude of price change to determine whether the security is oversold or overbought.
When the RSI index is above 70, then it is considered that the security is overbought, and if the RSI index is below 30, it is considered as the security is oversold. Intraday traders use RSI to spot potential reversals or pullbacks. However, in strong trending markets, RSI can remain overbought or oversold for extended periods.
RSI is more efficient in a range-bound market and when combined with trend indicators.
MACD is both a trend and a momentum indicator. It has three lines:
MACD line
Signal line
Histogram
A bearish signal occurs when the MACD line crosses below the signal line, and A bullish signal occurs when it crosses above.
MACD helps confirm short-term momentum shifts and works well in trending markets.
Bollinger bands are popular for market volatility. The Bollinger band has three bands, upper band, the middle band, and the lower band. When the price touches the upper band, it is considered an overbought condition, while when it touches the lower band, it may signal an oversold condition.
When the Bollinger band is squeezed, it generally indicates that a breakout may occur soon.
For intraday traders, volume plays a key role. Traders use it to confirm the strength of a price move. A rising price with high volume represents a strong move, and a rising price with low volume represents a weak move.
Volume spikes precede major intraday movements. Many traders use volume to validate entries suggested by other indicators.
VWAP gives the average value with respect to volume. VWAP acts as dynamic support and resistance during the session. Many day traders use VWAP as a trend confirmation tool.
Price trading above VWAP is considered bullish sentiment, while price below VWAP represents bearish sentiment.
The stochastic oscillator gauges the momentum of an asset's closing price in relation to a specified price range over a set period.
If the Stochastic oscillator is above 80, it signals an overbought condition, while if the Stochastic oscillator is below 20, it signals an oversold zone. It is particularly useful in sideways markets and short-term scalping strategies. It might give false signals in trending markets.
ATR measures volatility but does not indicate direction. Higher ATR values indicate higher volatility, while lower ATR values indicate consolidation.
Intraday traders use ATR primarily for setting stop-loss levels, determining position size, and measuring expected price movement. ATR is an excellent risk management tool.
Supertrend is a trend-following indicator based on ATR. It provides clear buy and sell signals. It works best in trending markets.
Price above the Supertrend is considered a buy signal.
Price below the Supertrend is considered a sell signal
ADX calculates the strength of the trend, regardless of its direction. It does not tell market direction, but it shows how strong the trend is. If the ADX value is above 25, the trend is considered strong. Conversely, if the ADX value is below 20, the trend is weak.
Intraday traders use ADX to decide whether to apply breakout strategies or range-bound strategies. ADX is particularly useful because it helps traders avoid trading breakouts in weak market conditions.
For intraday traders, technical indicators are an effective tool. By using the technical indicators, you can improve your trading and understand the market in simple terms. But it can be dangerous to rely just on indicators without knowing the market context.
Combining indicators can greatly enhance results, but the use of too many indicators can create confusion. The secret is to maintain a straightforward strategy, carefully combine indicators, adhere to stringent risk management, and keep improving your method.
Supriyo Khan
Supriyo Khan
Supriyo Khan
Supriyo Khan
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