Although the following list is not comprehensive, it includes the most popular indicators that we believe are the best for day trading. You might change the settings of the indicators over time, create custom indicators or create your own technical indicator.
1) Moving Averages
What is the moving-average indicator? Anyone who has ever looked at a price graph such as this figure chartiste will be aware that prices can fluctuate greatly. This price fluctuation can be smoothed out by using the average price for a number of periods. Smooth lines are created that track behind price bars or candlesticks and overlay them on your chart. How moving averages work: A smoothed line helps to identify the trend of the market. If the line slopes up, it is an indication that the trend is upward, while if it slopes down, it is an indication of a downward trend. If price crosses the moving mean or a shorter-term moving average crosses one, moving averages can provide trade signals. A moving average is a good choice for short-term trading. Moving averages were designed primarily for trend following. SMAs or EMAs are lagging indicator, meaning that the price must move first before the indicator can react to it. They can help to reduce market noise, but they are slow to indicate that trends have changed at pivot points. The 50-day moving mean and the 200-day moving mean are popular settings for long-term traders. However, indicators will adapt to your trading timeframe. The 20-period moving mean will adjust to 20 hours if you use a 1-hour chart.
2) Relative Strength Index
What is the RSI indicator? It is an oscillator. This means that it fluctuates between readings of 0 and 100. It measures the relative strength of bulls and bears by comparing their ‘up’ and ‘down’ moves. The RSI indicator’s purpose is to detect overbought or oversold market conditions. This could indicate that the price may have moved too fast and is about to reverse. Traders might also compare swings in RSI with swings of the price to determine if there is divergence. Divergence can also be used to indicate that the price movement is about to reverse. It is a good indicator for short-term trading because price movements can be rapid. Momentum indicators such as RSI can be a leading indicator. This means that the RSI’s direction will change before the price. This gives traders an opportunity to exit trades before the price reverses. The downside is that RSI may display false signals. This could indicate that a trend is changing when it doesn’t. RSI default settings are 14-days. However, if you drop down to shorter timeframes such as the one-hour chart, an RSI will be created using 14 hours price data.
3) Average True Range
What is the ATR indicator? The ATR indicator can be expressed as a single number, or as an underlay on the chart that tracks how the figure has changed over the time. This is the average market move over a given time period. It measures over 14 periods, which is the typical setting. The ATR indicator’s purpose: It measures realised volatility. How much has the market’s price moved over a given time period. This information is helpful for day traders trying to determine where to place stop loss or take profit orders. If a forex or stock trade is expected to last for several hours, the stop loss should be at least 1X the 1-hour ATR (14). It is good for short-term trading. As the price fluctuates, traders can easily be drawn into longer-term trades. ATR can be used as a benchmark to determine where profit targets should be set and how to reduce losses. The trading platform can adjust the timeframe settings so that the ATR is adjusted for short-term trading. For more information about short-term volatility, the trader may use a 14-hour ATR rather than a 14 day ATR.
