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Best Indicators For Day Trading

Best Technical Indicators for Day Trading In 2023

Your Expert Guide

The world of trading (and trading indicators) can seem daunting if you’re new to it. At DynoTrading we want to empower you by explaining everything you need to know about so you can trade stocks with confidence. (We also offer some world-class solutions to it – which I’ll explain at the end of this article).

We’re an industry-leading, highly experienced term of trading experts. We’re on a mission not just to help you with our bespoke tooling, but also with expert guides like this. Ultimately we want you to be better traders – and to do that you need to have a decent understanding of the basics of trading.

So – if you’ve heard of ‘technical indicators’ or ‘day trading indicators’ but have no idea what that means – you’re on exactly the right page! So let’s get straight into an explanation. 

What Are Technical Indicators?

Technical indicators are mathematical calculations of formulas based on the price and/or volume of a financial instrument or security. They are commonly used in technical analysis, which is a way of evaluating securities by analyzing stats generated by market activity (for example, past prices and volume).

They’re usually plotted on a chart as lines to make it easier to interpret.(Otherwise you’d be looking at hundreds or thousands of data points!). The key factors in day trading technical indicators are volume (i.e. how many trades are happening), time, and price.
If you’re using technical indicators in trading you can still use other analytical methods to assess trading opportunities. 

Do You Need Technical Indicators To Day Trade?

No – they’re not something you have to use – but they can be very helpful. They’re a valuable tool that any decent trader uses.
After all – why would you not want more information, data and help making the best trade possible?

Before we cover the most popular technical indicators in day trading, let’s explore why you would use them – and why you might not want to.

What Are The Benefits Of Technical Trading Indicators?

So now you know what day trading technical indicators are – let’s explore why you’d used them in your trading. Essentially they’re used to help you see opportunities for buying or selling. We’ll cover the best technical indicators in depth later in this article, but for now, remember that they help you uncover things like:

  • Strength of a trend
  • Momentum of a trend
  • Direction of a trend.

Technical indicators in day trading help you mitigate risk. As they’re giving you valuable data about resistance, support and trends, you can make way better decisions than without them. That then protects your bottom line as it reduces the odds of you making a bad decision, and increases the chances of you making a good one.
(And obviously as traders we want to make as many good decisions as possible!)

Good use of trading indicators will also help you with signals. With good data like this, trade signals will help you spot sell/buy opportunities you might not otherwise have seen. Think of them as a key part of your toolset to help you day trade smarter and more efficiently. Ultimately the aim is to help you be more profitable. Remember though – you’re still in control of the trades and it’s still up to you to make the decision.

So use the data indicators give you – but along with your intellect, experience and gut feel – before you buy or sell.

What Are The Downsides Of Technical Indicators?

Whilst indicators are usually a great idea, arguably there are some potential disadvantages:

  • They’re based on past price action so they can’t always be accurate in terms of predicting the future price movements
  • There are many to choose from – this can be tricky for people new to trading or technical indicators
  • They can give false signals – which could mean you make a bad decision in your trade
  • They’re subjective – i.e. they can be open to how we each interpret them. There’s not always a clear cut answer about what we read from them
  • They’re not always 100% reliable – depending on the type of indicator, some can be less robust in certain market conditions (e.g. if it’s not trending).

But the bottom line is – you don’t have to use technical indicators – but they’re highly recommended if you want to make a really data-informed decision. There are several types, which I’ll talk you through now.

The Main Types Of Technical Trading Indicators

There isn’t really a way of explaining day trading indicators without using a bunch of jargon.
Whilst I’ll give you the jargon, I’ll also try and explain each type of indicator in an easy to understand way.
Ready? Let’s go!

Relative Strength Index (RSI)

Relative Strength Indicator

First up, let’s talk about the RSI indicator. No – that’s not ‘repetitive strain injury’ – it means Relative Strength Index.

It’s a technical indicator traders use which measures the strength of the price action of a security,
As a momentum oscillator (‘oscillator’ because it varies around an average point, often between 0-100), it gives you a comparison of how big recent gains are vs recent losses. This helps you identify when an asset is in overbought or oversold conditions.

So how would we use the RSI indicator? Well in essence, to help us spot if a stock is overbought (in which case it’s ready for a price correction), or that it’s oversold (and therefore ready for an increase in price).
As a rule of thumb, if you’re seeing an RSI of more than 70, it’s overbought.
Whilst if you’re seeing it at below 30, it’s oversold.

Moving Averages

Moving Averages Indicator
Image credit: Investopedia

With a Moving Average indicator, we’re trying to smooth out the price data by seeing the average price. This is constantly updated.

It is calculated by taking the average of a security’s price over a certain number of periods, and is commonly used to identify trends and forecast future prices. However, there are more than one type of Moving Average indicator, so let’s break them down now:

Simple Moving Average (SMA)

Simple Moving Average Indicator
Image credit: Fidelity Investments

That brings us onto discussing the Simple Moving Average (or SMA for short). This is another best technical indicator which smooths out data on a price to give us an average that’s being updated all the time.

Again this lets us as traders look for trends – as well as buy/sell opportunities (which is what we’re here to do, right?)

As an example, if a stock price is above its SMA, we could conclude it’s on an uptrend and a good time to buy into it.
Conversely, if it’s below the SMA, we’re probably looking at a downtrend and a good profitable time to sell.

Like all the best technical indicators, we can use them as part of our toolbox and in conjunction with other ways of analyzing stock prices.

Exponential Moving Average (EMA)

Exponential Moving Average (EMA) Indicator

Image credit: Commodity.com

The Exponential Moving Average (EMA) is, like its name suggests, another technical indicator involving averages.
Whilst the SMA gives us a ‘smoothed-out’ average, the EMA gives more credence to recent data.

It’s used in the same way as SMA though. I.e., if the price is above its EMA, it may be time for us to buy (given the price is on the up). And if the price is below its EMA, we could arguably take advantage of the downtrend at sell.

So how is the EMA calculated? Well, we take the SMA (which we mentioned above) from a time period (let’s say 10 days).
A weighting factor is then applied to the most recent stock price (this factor is based on the length of the EMA). For you math buffs out there, here’s what the EMA formula looks like:

EMA = (current price x weighting factor) + (previous EMA x (1 – weighting factor))

And the formula for the weighting factor would be:

weighting factor = 2 / (length of EMA + 1)

If we wanted a 10 day EMA we would use this:

2 / (10 + 1) = 0.1818.

In simple terms, if we end up with a stock above something like its 50 day EMA, we’d consider that in a downtrend phase.
But if it was below it, we’d think of it as down trending.

Stochastic Oscillator

Stochastic Oscillator Indicator
Image credit: Fidelity Investments

This one is a bit of a mouthful! Here we’ve got a popular technical indicator which is all about measuring momentum.

What the Stochastic Oscillator helps us do is compare the close price of a security to the price range over a given time period. The Stochastic Oscillator has two lines:

  • The %K line
  • The %D line

%K is a fast line – you’ll find it is more sensitive to changes in trading prices.
Meanwhile, the %D line is slow and less sensitive.

%D lines tend to be an ongoing average of %K lines, which smooth them out to give you a better idea of the momentum.

There are two scenarios to note:

  • %K line being above the %D line
  • %D line being above the %K line

When %K is above %D, this may give you a potential for a buy (as it’s an upward trend).
When %K is below %D, you might be looking at a potential for selling (as there’s a downtrend).

Volume Weighted Average Price (VWAP)

VWAP Indicator
Image credit: ChartSchool

Next up we have the VWAP indicator. This measures the average price of trading over a given time period. It’s one of the most popular technical indicators in trading. This is based on the price and the volume (volume in terms of trades).
The total value divided by the number of shares traded gives us the VWAP – Volume Weighted Average Price.

Think of VWAP as a way of analyzing if you’re getting a good price in your day trading. If the stock you’re interested in has a price above the VWAP, you could be looking at a good time to sell.
And on the flip side, if it’s below the VWAP, it may be a good time to buy, as the stock may be undervalued.

Many traders and companies use VWAP to day trade at scale but in a way that doesn’t impact the market too much.
For those of us doing day trading, VWAP can be super helpful to see likely resistance and support levels.

On Balance Volume (OBA)

On Balance Volume (OBA) Indicator
Image credit: Fidelity Investments

With the OBA technical indicator, the important factor here is volume.
The On Balance Volume helps us predict whether a stock is going to decrease or increase in the future.

So – if the volume of a stock is going up, we could interpret that as showing the price will go up too.
Conversely, if the volume’s going down, we might assume the price will be as well.

It’s a great technical indicator which we can use with ones like averages (e.g. SMA/EMA) to see breakouts, trends etc.

Bollinger Bands

Image credit: IG.com

Yeah I know – you’re thinking ‘Bollinger’ here refers to champagne? Sorry to disappoint you but it’s a little more technical than that!

So Bollinger Band actually means a technical indicator that helps us determine how volatile a stock is.
Normally with a Bollinger Band you’d expect to see three lines on your chart. Think of them like a sandwich of:

  1. Upper band
  2. SMA (our old friend the Simple Moving Average)
  3. Lower band

When there’s been little volatility lately and the bands ‘tighten’, it often means a move will happen (either up or down).

When the bands separate a lot, it shows more volatility and the current trend ending. By the way, if you’re wondering where the term originated, it’s from a market technician called John Bollinger (who is now also an author).

Average Directional Movement Index (ADX)

ADX Indicator

Image credit:Medium.com

With the Average Directional Movement Index (ADX), we have a technical indicator that helps us measure how strong a trend is.

it’s worked out by taking the difference between two exponential moving averages (EMAs) of the stock’s high and low prices over a certain number of periods (e.g. days or weeks).

You can assume a trend is powerful if the ADX is above 40 – and weak if below 20.

The ADX is actually worked out based on three indicators:

  • Directional Movement Indicator (or DMI)
  • Negative Directional Index (NDI)
  • Positive Directional Index (PDI)

You may also see the ADX calculated using:

  • Plus Directional Indicator (+DI) – bullish
  • Minus Directional Indicator (-DI) – bearish

So with this popular technical indicator we’re seeing if a market is trending or not – which can help us make an informed decision on a day trading decision..

A potential downside of using the ADX is it’s only going to work properly in a trending market. If the market is ‘ranging’ then it’s not as robust. Secondly, it’s a ‘lagging’ indicator (i.e. it’s based on the price action of the past) so can’t always be relied on to predict price movements coming up.

Fibonacci Retracement

Fibonacci Retracement Indicator

Image credit: Fidelity Investments

You’ve probably heard the word ‘fibonacci’ before, from the term ‘fibonacci sequence’. You might have covered this in a math lesson. It looks like this:

0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144, 233, 377, 610 etc etc…

And indeed that’s where the Fibonacci Retracement indicator gets its name.

Picture a chart that has two major points – one very high, one very low.
Using this indicator, we take the distance (vertically that is) between those two points and divide it by Fibonacci ratios.
The most popular levels are 38.2% and 61.8%.

What we do then is add horizontal lines on the chart to show resistance and price support levels.

Fibonacci Retracement can often be more powerful when combined with another technical indicator like a moving average. This gives us as traders a more holistic view on whether to sell or buy.
This day trading technical indicator is most useful if the market is trending. Like other indicators that thrive in a trending market, it can often be lacking if the market is ranging or having sideways movements.

Candlestick Pattern Recognition

Image credit:medium.com

Before I explain this type of trading indicator, I’ll give you a quick rundown on what candlestick charts are. Candlestick charts have the following parts to them:

  • Upper shadow (showing the high for a given period)
  • Body (showing the range between the two)
  • Lower shadow (showing the low for that period)

So that’s the chart, now let’s go through the Candlestick Pattern Recognition indicator.
This indicator visualizes what the price movements are. They happen based on the opening/close and high/low prices of the stock.

Basically the idea is to look for patterns that can be interpreted as bearish or bullish.
Each pattern has a name which corresponds to its shape, for example:

  • Hanging man
  • Evening star
  • Shooting star
  • Inverted hammer
  • Hammer
  • Doji

With the bullish patterns, we’re getting an indication of likely price rises (and therefore we may want to buy).
With bearish patterns, we can interpret these are a sign of likely price drops (and so we may want to consider selling).

Moving Average Convergence Divergence (MACD)

Image credit: IG.com

Nope, it’s not short for ‘McDonalds’!
The MACD is another handy trading indicator that measures the trend and strength of a momentum.

Moving Average Convergence Divergence gives us the relationship between the EMA (remember from earlier?) and the actual price of the stock. It’s calculated like this:

12-Period EMA – 26-Period EMA.

Then the MACD trading indicator is plotted on a chart – both below and above a ‘zero line’. Like with other indicators, we want to figure out if the market is bullish or bearish.

With the MACD this is how we work it out:

  • If the MACD line is above the ‘zero line’, we take that to mean bullish
  • If the MACD line is below the ‘zero line’, we’ll take that as meaning bearish

Technical Indicators In Trading – A Summary

We all know that trading, whilst it can be extremely profitable, isn’t easy. Technical indicators are a vital tool which help us simplify things – with the end result being easier decisions.

We’ve seen that whilst there are many technical indicators, you can choose to use one in isolation, or combine them for even more context about the trade. To wrap up before we explain about DynoTrading – and then answer your FAQs:

  • Indicators for day trading are super helpful and a vital tool in our arsenal
  • There are many types of indicators
  • You can use just one indicator or multiple
  • They aren’t always going to give you 100% correct answers
  • You still need to use your brain!

How DynoTrading Helps Traders

In this article we’ve covered a lot of ground about technical indicators. By now you should have a much better understanding of what they are, what each means, and how you can use them in your trading.

Technical indicators are great but there is an even easier way of making quicker data-informed trading decisions. And that’s where we come in. DynoTrading is cutting edge software built for day trading beginners.
We’ve been there too – you want to become a better trader but find the technical stuff overwhelming. We built DynoTrading to take the guesswork and hassle out of day trading.
We built it because we want to help up and coming traders like you be better at it and make more money.

Over the years we’ve had the pleasure of helping 100s of people strip away the mystery of day trading with our bespoke software made by traders, for traders.

The DynoTrading platform takes your charts and simplifies them so you can see at a glance when the best time to buy or sell is.
DynoBars and DynoTrendlines are the solutions you need. Get in touch with us today for a free demo to help you start being more profitable.

Day Trading Indicators – FAQs

What are technical indicators?
Technical indicators are mathematical calculations based on the price and/or volume of a security. They are used by traders to help identify trends, assess risk, and make informed trading decisions.

Can I use multiple indicators?
Absolutely you can – in fact, it’s good practice to do just that. A good way is to try combining different types of indicators together.
If you’re getting the same ‘message’ from them then it’s a surer sign to commit to the trade.

What are the most popular technical indicators?
Some of the most popular technical indicators among day traders include the moving average, Bollinger bands, relative strength index (RSI), and stochastic oscillator.

What is the most accurate indicator in trading?
Sadly there isn’t a proper answer to this. Firstly not all indicators are best for all situations, and secondly not all work well in every market condition. So to say one indicators is more ‘accurate’ than another wouldn’t be a fair thing to say.

What are the most widely used indicators?
Generally speaking, the most popular indicators are the ones we’ve explained on this page.
So that includes Fibonacci retracement, stochastic oscillator, RSI, MACD, Bollinger bands and Moving averages.
There are many other types but these are the most popular and significant ones.

Do you need indicators to day trade?
No, you don’t need indicators to day trade. Like any tool, they are there to help you.
In this case they’re helping you interpret, summarize and visualize the price data.
You’re under no obligation to use indicators of any sort – but you’d be taking a huge gamble by not.

Are there any drawbacks to using technical indicators?
Kind of, yes. One potential drawback of using technical indicators is that they are based on past price and volume data, which may not always accurately reflect the conditions of the market in the future. It’s important to understand the limitations of technical indicators and use them appropriately cobmined with other analysis methods.

What are the best indicators for day trading on TradingView?
That’s actually quite a tough question – as TradingView has over 100 build in indicators and 5,000 custom ones!
We would probably suggest trying out MACD (Moving Average Convergence/DIvergence) and RSI (Relative Strength Index) first of all.

Can I use technical indicators in conjunction with fundamental analysis?
Yes, technical indicators can be used in conjunction with fundamental analysis to help confirm or supplement trading decisions. For example you might use technical indicators to identify a potential entry point and then use fundamental analysis to assess the underlying strength or weakness of the security.

Can I rely solely on technical indicators for my trading decisions?
You could do but I normally recommend just relying on technical indicators for trading decisions. Technical indicators are best be used when combined with other analysis methods, such as fundamental analysis and risk management techniques.

How do I use technical indicators in my trading?
Technical indicators can be used in a bunch of ways, such as to identify trend direction, assess overbought or oversold conditions, or confirm other technical or fundamental signals. It’s important to understand how each indicator is calculated and what it represents in order to use it effectively in your trading.

Are there any technical indicators that work well in all market conditions?
Not as such – there aren’t really any technical indicators that work well in all market conditions. It’s super important to understand the limitations and strengths of each indicator and use them appropriately given the conditions of the market at the time.

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