The 7 Best Day Trading Indicators
1. RSI
What Is RSI
How to Trade RSI
These same-day traders would also look for the RSI value to reach the oversold level (30 or 20) to look for opportunities to buy the stock or options contract.
B. RSI can serve as a trend indicator as well. Some traders look for an RSI value greater than 50 to indicate that the stock is in a strong uptrend and then look for an entry point to buy the stock or equity.
When the RSI is less than 50, then this could indicate the stock is in a downtrend, and a trader would begin looking for short entries.
2. Moving Averages
What Are Moving Averages
Moving averages calculate the average price of a stock or equity when compared over a specific range of candlesticks. For example, for a 5-minute chart with a 21-period moving average, the moving average is calculated by factoring in the close price of the last 21 candles. In this case, the moving average would account for 21 x 5 minutes or equal to the average price over the previous 105 minutes.
The most common moving average types are the simple moving (SMA) and the exponential moving average (EMA). The difference is that the EMA focuses more weight on the most recent prices than previous prices, so many day traders prefer the EMA over the SMA.
The SMA and EMA are not the only types of moving averages available. The hull moving average and the displaced moving average (DMA) are less common moving averages, and they have separate calculations and configurations available.
Moving Average Example Chart
How to Trade Moving Averages
A. The moving average is used primarily to help visualize the trend of a stock. The most common moving averages to determine stock trends are the 21-period, 50-period, or 100-period moving average.
If the stock price is above these moving averages, then this means that the stock is more in an uptrend. If below the lines, then it is likely in a downtrend.
Moving averages are available for charting in any time frame. Please note that stocks in an uptrend on the daily chart time frame could be in a downtrend on a 5-minute chart.
B. Another common way to trade moving averages is to look for a crossover of 2 moving averages. For example, this crossover could occur when the 8-period moving average crosses a 21-period moving average.
If the 8-period crosses above the 21-period, this could indicate buying the stock as the trend is changing to the upside. The moving average period can be adjusted to whatever value fits your needs. It is always good to backtest the periods for the moving averages to determine your crossover strategy.
3. MACD
What Is MACD
MACD stands for a Moving Average Convergence Divergence. It is a technical analysis indicator comprised of a MACD value and an average line (uses the 12-length and the 26-length moving average). The MACD is a momentum indicator to measure the momentum of price movement in a stock.
MACD Example Chart
How to Day Trade MACD Indicator
A. Traders will look for a crossover of the MACD line with the average line on the chart to determine whether to purchase or sell a stock. Additionally, whether or not the crossover occurs above or below zero can serve as an additional confirmation to enter the trade.
Many traders will only buy the stock if the crossover occurs above the zero line and short the stock if the crossover occurs below the zero line.
B. The moving average convergence divergence (MACD) can serve as a way to determine if there is a divergence in the price of a stock. Some day traders use MACD to indicate divergence. An example of divergence is when the stock price gets higher highs, but the MACD has a lower high.
This movement suggests that the momentum in the stock price may be fading and that there may be a reversal soon so that the trader is ready to look for short positions. See this example of divergence below. Also, note that divergence can be identified with RSI as well.
4. Stochastics
What Is Stochastics
The Stochastics indicator is very similar to the RSI as it also has oversold and overbought levels on the chart. It also contains two additional lines on the chart for a full and a slow Stochastics value.
The calculations used for the Stochastics indicate an uptrending market based on current prices closing near an upper price range or a downtrending market with the current prices closing near the lower range.
It is a highly complex calculation used to determine the specific values based upon close prices and the differences between lower lows and higher highs within a particular period.
Stochastics Example Chart
How to Trade Stochastics
A. Similar to the RSI, the stochastics can be traded when the values (Slow or Full) are within the overbought and oversold level. If the RSI value is greater than or equal to the overbought level (70 or 80), begin looking for opportunities to short; if the value is in the oversold level (30 or 20), look for opportunities to buy the stock or options contract.
5. VWAP
What Is VWAP
VWAP is a day trade indicator whose acronym stands for Volume Weighted Average Price. VWAP is growing in popularity as a leading indicator because it does not lag as moving averages.
Moving averages put a ton of weight on past price action and not the current price. So, moving averages as most technical indicators are considered lagging indicators. However, VWAP puts more weight on recent prices and volume, so many day traders include it on their trading chart.
On the standard VWAP chart, an upper and a lower band are included with the actual VWAP line. The upper and lower band represent a standard deviation from the VWAP value.
VWAP Example Chart
How to Trade VWAP
A. Many traders look for a bounce from the main VWAP line to enter a trade. If the price is above VWAP and bounces from the VWAP line, these traders will enter a long position -or- if the price is below VWAP and bounces from the VWAP line, these traders will enter a short position. The VWAP acts as a magnet for stock prices to test and react.
B. Similarly, when prices near the standard deviation bands (upper or lower), day traders may look for the price to react to these bands and reverse in the opposite direction. A bounce from the standard deviation lines is another way VWAP is traded.
6. Bollinger Bands
What Are Bollinger Bands
Bollinger bands are day trading indicators that include upper and lower bands, similar to VWAP bands. However, these bands expand further based on stock price movement. These upper and lower bands indicate oversold and overbought levels on a chart.
Bollinger Bands Example
How to Trade Bollinger Bands
A. When prices are near the upper and lower Bollinger Bands, look for price to react and for there to be a reversal in the other direction.
7. Price and Volume
What Are Price and Volume
Out of the 7 best day, trade indicators Price and Volume are the absolute best day trading indicators available. There is no other indicator that is superior to reading price and volume. Price action is king in trading because the indicator does not lag and represents the current action.
Volume is enough to understand the overall momentum of a stock. Price and volume are the only concepts we recommend to all traders to become profitable. Price and volume are not necessarily trading indicators; they are the standard included on all charts.
How to Trade Price and Volume
There are countless ways to trade price and volume based on your trading plan and style. Our recommended way is to use price and volume based on the Maurice Kenny (MK) VIP Day Trading system that requires no technical indicators.
Summary of The & Best Day Trade Indicators
Trading indicators can be used to identify price strength and market trends to help ensure that you are trading on the right side of the market. The indicators provided in this article can be used with your trading strategy to unlock your road to day trading profitability. However, we have found that price and volume are the best indicators for price movement, momentum, and trend.
Our simplified approach to day trading removes complexity and complication by teaching you how to read the price chart and allow the price action to tell you what will happen next. Let us help you read charts easily without the need for a trading indicator.
Check out the 1-hour webinar to see how we read price action and volume and learn why you do not need technical indicators on your chart.
Also download a ( FREE E-BOOK ) by Maurice Kenny DAY TRADE LIKE A MILLIONAIRE.
Maurice Kenny is a profitable day trader and coach that is available to assist you in learning to read price and volume to day trade and not rely on technical indicators to become a consistently profitable day trader.
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