2022 Day Trading Indicators
Successful day traders don’t pull the trigger on a whim. Almost all of the best traders follow some rigorous criteria for each trade they complete. Virtually all of these traders also utilize multiple indicators as part of their criterion.
In the end, day traders are speculators. While examining assets for a potential opportunity, traders need a tool that can filter out as much of the market noise as possible. For this role, indicators are the day trader’s bread and butter.
2022 DAY TRADING INDICATORS TECHNICAL INDICATORS FOR INTRADAY TRADING
Technical indicators should play a large role in the trader’s process. Traders typically use a combination of leading and lagging indicators. Leading indicators show where the price may be moving while lagging indicators are used to understand how the price has been moving.
These indicators come in five main types:
Trend Indicators (Lagging) – Trend indicators are used to see whether a market is moving upwards, sideways, or downwards over time.
Momentum Indicators (Leading) – Momentum indicators are used to judge how strong trends are. They are commonly used to judge price tops and bottoms.
Relative Strength Indicators (Leading) – Relative Strength indicators are used to gauge market buy-sell cyclical patterns.
Volume (Leading or Lagging) – Volume indicators show how the asset is being bought and sold over time. Volume indicators are particularly useful in determining the significance of price movements, as high-volume price movements are generally much more indicative of potential opportunity.
Mean-reversion Indicators (Lagging) – Mean-reversion indicators are used to judge whether an asset has been either oversold or overbought, and is due for a correction in the opposite direction.
Which Is The Best Indicator For Intraday Trading?
When it comes to indicators, complexity is often times not a positive. Indicators are also meant to provide simple analysis, and convert data into easily useable information – using too many indicators can overcomplicate things.
There is also no one-size-fits-all indicator that will tell you everything that you need to know about an asset in order to make a successful trade. However, using certain combinations of these indicators can be a simple but effective strategy.
Relative Strength Index (RSI) is often combined with Moving Average Convergence/Divergence. The RSI suggests whether an asset has been overbought or oversold, and the MACD works to confirm that the trend is moving in the correct direction.
Which Time Frame Is Best For Day Trading?
In our opinion, one of the best day trading indicators just after market open, is one-minute bar ticks. Because there is a flurry of trading activity when the markets open, the one-minute ticks allow day traders to process all of the activity that occurs. Later in the day, traders often adjust their ticks to two, three, or five minutes to fit in the whole day of trading activity into the window. Additionally, because one-minute ticks will appear as long as any singular trade is completed, it is very important to monitor volume.
For beginning traders, however, one-minute ticks may move too quick. Five-minute ticks are a great alternative that offers slightly less trading opportunity at a slower pace.
Ticks of 15 minutes or larger are generally not recommended for day trading indicators unless you are pursuing a specific strategy that calls for them.
Which Chart Is Best For Intraday Trading?
Candlestick charts are the default for most day traders for good reason. Because of the color-coded candles and the shadows, it is relatively easy to recognize patterns and interpret trends.
A candle’s rectangular body represents the difference between the open and close prices of the asset. The lines that may be on the top or bottom of the candlestick represent the daily high and low prices.
There are a large variety of candlestick patterns that traders recognize as signals. Patterns include single candlestick trends such as the Marubozu, Spinning Top, and the Doji along with multi-candlestick patterns, such as the Engulfing Pattern, Harami, and Evening Star. The ability to recognize and understand these patterns can be an invaluable tool in a trader’s toolkit.
BEST VOLUME INDICATOR
Volume is one of the trader’s most important tools in determining whether a trend is backed by “smart money”, a.k.a. institutional investors. While retail investors have a significant influence on the market, institutional investors tend to be the large volume traders that drastically affect the markets.
One of the most common and tested volume day trading indicators is the On-Balance-Volume (OBV), first introduced by Joe Granville. This indicator was first hashed out in Granville’s book Granville’s New Key To Stock Market Profits, and is still heavily used to this day.
OBV was based on the theory that this “smart money” buys as retail investors sell, and that the “smart money” begins to sell as retail investors begin to buy.
Traders look at the OBV to try and determine what the “smart money” is currently trading. When volume and price diverges, this is seen as an opportunity to join the “smart money” in a trade that profits at the expense of retail investors.
BEST TREND REVERSAL INDICATOR
One tried and tested trend reversal indicator is the “Sushi Roll” Reversal Pattern, first pioneered by Mark Fisher. In the book The Logical Trader, Fisher outlines the “Sushi Roll” as a grouping of ten bars where the first five bars have limited upwards and downwards movement, while the second group of five bars has higher highs and higher lows. When seen at the end of a bearish period, the “Sushi Roll” Reversal Patterns suggests that the market momentum may be shifting back upwards. Alternatively, if the “Sushi Roll” appears at the top of a bullish period, the pattern suggests that the bears may take control of the market.
IS SWING TRADING BETTER THAN DAY TRADING?
While day trading and swing trading both have the same goal of profitability, they employ different tactics and techniques. Both swing traders and day traders look to identify and capitalize on trends and price movements.
Swing traders typically trade over a period that can range from days to months. Swing traders typically look at 15-minute to 1-hour candles to make their trades.
Day traders typically open and close several positions during the day. At the end of the day, the day trader will always have closed all of their positions, removing the risk of overnight movement in prices.
Neither of these two strategies is superior to the other. While day trading may offer more opportunity for profits, it also requires that the trader put in significantly more time watching the markets. Most day traders have swing traded in the past – we recommend that you try both strategies to find out what works best for you personally.
Which Time Is Best For Intraday Trading?
Because opening time is so volatile, it is often best to observe during the first portion of the trading day. When trends and patterns begin to solidify themselves an hour after trading opens, the trading opportunities begin to present themselves.
One of the most popular times to trade is between 9:45 AM and 11:30 AM. During this period, markets are the most active and opportunities present themselves the most commonly.
After 11:30 AM, trading begins to slow down as traders begin filtering off into lunch break. Up until approximately 3:00 PM, volatility tends to die down and trading opportunities tend not to present themselves as commonly.
Near 3:00 PM, one hour before close, trading begins to pick up again. While this period tends to be less active than during market opening, this is another strong period to trade.
MACD DAY TRADING
What Is Macd Indicator?
A 26-period exponential moving average (EMA) can be combined with a 12-period EMA to create an indicator for momentum. To create the MACD line, subtract the 26-period EMA from the 12-period EMA.
The signal line should be the 9-period EMA. When the MACD intersects and drops below the signal line, the indicator suggests a bearish trend. When the MACD intersects and rises above the signal line, the indicator suggests a bullish trend.
IS MOVING AVERAGE A GOOD INDICATOR?
The moving average is one of the most long-standing and reliable indicators in trading. Because moving averages do such a good job of smoothing out fluctuations and noise, they are an invaluable tool for judging longer-term trends.
Technical analysis is grounded in the fact that past performance can provide signals for the future. Moving averages allow a trader to understand past pricing trends.
Because moving averages are so flexible and robust, they are often plotted against each other. It is very common to plot two moving averages with different time intervals in order to spot possible trends. One example of this crossover is the MACD.
WHAT HAPPENS WHEN THE 50 DAY MOVING AVERAGE CROSSES THE 200 DAY MOVING AVERAGE?
When the 50-day moving average intersects with the 200-day moving average, this is referred to as a cross. When the 50-day moving average intersects and rises above the 200-day moving average, this is considered to be a bullish indicator. When the 200-day moving average interests and rises above the 50-day moving average, this is considered to be a bearish indicator.