BEST INDICATORS FOR INTRADAY TRADING
INTRADAY INDICATORS IMPORTANCE :
1.Trend
The particular indicators indicate the trend of the market or the direction in which the market is moving. Typically, the trend indicators are oscillators, they tend to move between high and low values.
2.Momentum
Momentum indicators indicate the strength of the trend and also signal whether there is any likelihood of reversal. Relative Strength Index (RSI) is one momentum indicator, it is used for indicating the price top and bottom.
3.Volume
Volume indicators how the volume changes with time, it also indicates the number of stocks that are being bought and sold over time. When the price changes, volume indicates how strong the move is. On-Balance Volume is one of the volume indicators.
4.Volatility
Volatility is one of the most important indicators, it indicates how much the price is changing in the given period. Volatility gives an indication of how the price is changing. High volatility indicates big price moves, lower volatility indicates high big moves.
BEST INDICATORS :
1.Moving Averages
Moving averages is a frequently used intraday trading indicators. It provides information about the momentum of the market, trends in the market, the reversal of trends, and the stop loss and stop-loss points. Moving average allows the traders to find out the trading opportunities in the direction of the current market trend.
2.Bollinger Bands
Bollinger bands indicate the volatility in the market. Bollinger bands are of 3 types: a middle bang which is a 20-day simple moving average, a +2 standard deviation upper bang and a -2 lower deviation lower band. The price of a stock moves between the upper and the lower band. When the market is moving and the volatility is greater, the band widen and when the volatility is less the gap decreases. Bollinger bands help traders to understand the price range of a particular stock.
3.Relative Strength Index (RSI)
Relative Strength Index (RSI) is a momentum indicator. It is a single line ranging from 0 to 100 which indicates when the stock is overbought or oversold in the market. If the reading is above 70, it indicates an overbought market and if the reading is below 30, it is an oversold market. RSI is also used to estimate the trend of the market, if RSI is above 50, the market is an uptrend and if the RSI is below 50, the market is a downtrend.
4.Commodity Channel Index
Commodity Channel Index identifies new trends in the market. It has values of 0, +100, and -100. If the value is positive, it indicates uptrend, if the CCI is negative, it indicates that the market is in the downtrend. CCI is coupled with RSI to obtain information about overbought and oversold stocks.
5.Stochastic Oscillator
The stochastic oscillator is one of the momentum indicators. The oscillator compares the closing price of a stock to a range of prices over a period of time. The momentum of the stock b=changes before the price, hence, momentum is a useful indicator.
6. SuperTrend
Let’s start our discussion with the Supertrend indicator that can be used as an intraday trading indicator. This indicator is plotted on the price chart and the current trend can simply be determined by its placement vis-a-vis price. It is a very simple indicator that is constructed with just two parameters- period and multiplier.
So, when we construct the Supertrend indicator, we generally use the default parameters-10 for Average True Range (ATR) and 3 for its multiplier. The average true range (ATR) plays an important role in ‘Supertrend’ as it uses ATR for computing its value and signals the degree of price volatility.
Supertrend indicates that the trend is in the upward direction when it is placed below the bars and the trend is in a downward direction when it is placed above the bars. This indicator indicates a buy signal when it closes below the price and the colour changes to green. On the other hand, a sell signal is made when the Super Trend closes above the price and the colour turns red.
7. VWAP
The second intraday trading indicator which I would suggest is VWAP- Volume Weighted Average Price. When trading intraday, traders need to track the volume in the stock. VWAP is a volume indicator of the ratio of the value of a stock traded in a particular time to the total volume traded at that stock for a particular stock.
This indicator indicates a bullish trend when the price of a stock is above VWAP. This means that the price is above average volume and the trend is positive. We can enter the stock in this particular condition on a retracement to VWAP in the direction of the trend. Similarly, a bearish trend can be confirmed when the price moves below the VWAP line. You can sell at the VWAP in the direction of the trend.
8. Average Directional Index
According to me “trend” is the best friend of every intraday trader and the ADX indicator helps us in determining the trend’s strength.
ADX tells us whether the ongoing trend has the strength to continue going up or down. Its values oscillate between 0 to 100, and one should remember that the higher the value higher will be the strength of the trend. The default look-back period of ADX is 14 periods but can be changed according to the volatility of stock or index.
Usually, ADX value below 25 indicates a very weak trend whereas value above 75 indicates a very strong trend. ADX is generally not used alone, rather it is used along with other trend-following indicators like Supertrend for filtering the false signals.
9. Donchian Channel
When doing intraday trading one also needs to analyse volatility indicators that help us in analysing if the volatility in the stock is high or low. We can use the Donchian channel for this purpose in intraday trading. Donchian Channel is constructed by calculating Highest High and Lowest Low for a pre-defined period.
When there is a breakout of the Donchian channel from the upper or lower band then it is considered as the starting of a new trend. The Donchian channel is also useful for studying the volatility of the price. If the price is stable then the Donchian channel will be narrow But if the price fluctuates often then the channel will be wider.
10. On-Balance Volume
On Balance Volume (OBV) is again a popular volume indicator that tracks the absolute volume change for speculating price movement. Most traders believe that volume drives price because of the aggressive trades from institutional investors. Thus, the On Balance Volume indicator help us in tracking this smart money flow into the market and also signals future price direction.
If there is a change in OBV value that is higher than a change in price for a given time period, then we may see a sharp upside or downside in price in the near future.
One can trade using OBV Divergences that can be reliable too. Bullish divergence is formed when OBV forms a higher high and higher low, while price forms a lower low. On the other hand, Bearish divergence is formed when OBV forms lower high and lower low whereas price forms higher high.
CONCLUSION :
As discussed above, these technical indicators can be used for intraday trading but one should also remember that they should not trade based on only one intraday technical indicator. One should set up their intraday trading strategy and use a combination of these indicators. For example, one can combine a momentum indicator with volatility and volume indicators. This way the signal given by one indicator can be confirmed with other intraday trading indicators. I hope that you found this blog informative and use the information to its max potential while indulging in intraday trading. Show some love by sharing this blog with your family, friends and your Trading Community.
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