Intraday trading is the most popular and widely talked topic in the stock market. To do intraday trading technical analysis must need. There are different tools and indicators are available in the market for intraday trading but which one is the best indicator for intraday trading that is major confusion between traders. First of all, you have to understand all the indicators are best because indicators are developed by experts with backtesting but the major problem is how to use properly. Traders can select indicators that suit them by doing lots of practice. But there are some indicators that are widely used by multiple traders and that indicators are also successful.
The following are some of the 5 Powerful Best Indicators For Intraday Trading.
One of the widely used indicators for intraday trading by a trader is supertrend. Supertrend indicator shows the trend of price. The graphical view of the supertrend indicator is the same as the moving average. Supertrend indicator also gives buy and sell signals by using different parameters and strategies.
The default parameter of the supertrend indicator is 10 and 3. But many traders use 3 or 2 supertrend trading strategy to generate trades
Traders can use other tools and indicators for the second confirmation.
RSI stands for Relative Strength Index. The name itself suggests it shows the strength of price movement. By RSI indicators traders can identify the overbought or oversold position of price. RSI widely used by traders with other tools and indicators to identify the best opportunities.
Most traders use RSI indicator to know the overbought and oversold position. Many trades also apply moving average on RSI to generate trading signals.
The default parameter of the RSI indicator is 14. RSI calculation considers the average gain and average loss over a period of time. There are mainly two levels to watch in RSI 30 and 70.
As per general rule if RSI is above 70 levels it called overbought and if RSI below 30 levels it called oversold.
3. Moving Average
Everyone loves moving average in technical analysis because of its a one of the easy and most accurate indicators in technical analysis. A moving average calculated on the basis of past history price.
There are basically two types of moving averages.
- Simple Moving Average ( SMA)
- Exponential Moving Average (EMA)
SMA is not widely used because it gives the late signals compare to EMA. EMA is a widely used indicator for intraday trading. Many traders use multiple EMA and generate trades on different EMA crossover. EMA crossover is one of the best strategies to generate trades in the live market.
E.g. If someone using 50 days EMA than buy signal will generate when 50 days EMA below the price and sell signals will generate when 50 day EMA above the price.
A trader can use other tools and indicators also for second and accurate confirmation.
4. Bollinger Bands
Bollinger Bands is a unique and accurate trading indicator that considers both moving average and standard deviation. Bollinger band is the best combination of risk and trend.
The default parameters of the Bollinger band is 2 moving average (20 Day moving average upper band and 20 days moving average lower band ) with 2 for standard deviation.
The general rule is to buy signal will generate when the price falls below the lower band and the sell signal will generate when the price goes beyond the upper band.
The stochastic indicator is a momentum indicator. The stochastic indicator is developed by George C. Lane in the 1950s.
The stochastic indicator is calculated using the following formula:-
- %K = (Most Recent Closing Price – Lowest Low) / (Highest High – Lowest Low) × 100
- %D = 3-day SMA of %K
- Lowest Low = lowest low of the specified time period
- Highest High = highest high of the specified time period
- ( %K = Indicators, %D = Signal Line)
- The formula is very important to understand the reason behind any indicators.
- The default setting for the stochastic indicator is 14 periods and you can use it in any timeframe; such as daily, weekly, or even intraday.
Let us understand how you can use a stochastic indicator in trading.
- To identify the overbought or oversold conditions.
- You can identify overbought or oversold conditions of stock or market by the stochastic indicator.
- You can check in the below image of AXISBANK APRIL 2020 Chart that how stochastic indicator we can use to identify the oversold position of axis bank and stock also bounce back from that level.
- You can check in the below image of AXISBANK APRIL 2020 Chart that how stochastic indicator we can use to identify the overbought position of axis bank and stock also started downtrend from that level.
2. Bullish and Bearish divergences
Divergence means when an indicator and the price of an asset are heading in opposite directions.
There are two types of divergences:-
- Negative Divergences:-Negative divergence happens when the price of a security is in an uptrend but an indicator starts downtrend.
- Positive Divergences:- Positive divergence occurs when the price is in a downtrend but an indicator starts uptrend.
—+ So divergences can be used as a reversal tool by confirming with other tools and indicators.
Conclusion:- So you can use stochastic indicator in trading to identify overbought/oversold conditions or divergences with other tools and indicators.
Thanks For Reading
Note: All the above information is just for educational purposes only.