Technical analysis is a methodology in a financial market where one studies and analyzes past market data to predict the future movement in prices. Technical analysis and fundamental analysis go alongside.
It is like both are the two different sides of a coin called ‘the financial market’. To perform technical analysis there are different types of technical indicators used by traders to predict future price movements to evaluate and identify trading opportunities. With the use of technical indicators, a trader evaluates the strengths and weaknesses of security.
Technical analysis is commonly used by day traders who are focused on short-term price movements.
Use of Technical Indicators for Intraday Traders
Intraday traders who trade daily use technical indicators to assess the security and market scenario before day trading. Certain pointers allow intraday traders to make a profitable decision while day trading.
The pointers we’re talking about are as follows:
- The future direction of the existing market trend
- Overall momentum in the investment market
- Possibility of profit
- Volume assessment to know the popularity of the market
- Demand and supply
With the right combination of technical indicators, stock tips, and a disciplined approach a day trader can learn about the above pointers and make smart trading decisions with his/ her investment.
Best trading indicators for intraday trading
Daily Moving Average (DMA):
Daily Moving average (DMA) is an oscillator type of technical indicator that is widely used by intraday traders. It is also known as one of the lagging indicators that are trend-following and is entirely based on past prices.
It is a line on a stock chart that connects the average closing rates over a specific period. It is said that the longer the period, the more reliable the moving average is. As you know the price of a stock does not move in one direction. The price is volatile and can go either way – up or down. That’s where the DMA comes into the picture. It helps in understanding the trend of the price movement.
If the short-term moving average is exceeding the long-term averages then it is an indication of a bullish market trend. In that case, one can take the buy call with some stop-loss either at the long-term moving average or retracement support and vice-versa.
Bollinger Bands:
Bollinger band is a type of trading band that gives information on three lines – a moving average, an upper limit, and a lower one. It is one step ahead of the moving average. If the stock is trading at a price below the Bollinger Band lower line then it means, there is a potential for the stock price to increase in the future, but if the stock is trading higher than the upper limit, the trader can share the stock since it will not increase in price anytime soon.
So, when day trading – don’t forget to buy in the Demand Zone and Sell in the Supply Zone.
Relative Strength Index (RSI):
Relative Strength Index (RSI) is one of the momentum technical indicators that give us the magnitude of recent price changes to evaluate overbought and oversold conditions in the stock price.
As a result, the RSI score ranges between 0 and 100. According to many market experts, it is recommended to sell a stock if it touches 70 and buy a stock when it touches 30.
Also, one more thing!
Don’t forget that not all stocks adhere to the same RSI pattern of overbought and oversold.
These are the top 3 technical indicators for intraday trading. However, there are plenty of other technical indicators but most of them are redundant and almost identical. That’s why we would suggest you pick only one indicator from one category. Otherwise, you may lose your precious time on it.
Not only that many traders like positional or even position trade, but too many technical indicators, increase complexity which ultimately affects the trading decision. So, instead of going with multiple indicators, try finding stocks that are right for you and making a profitable decision. With the use of technical indicators, you can make appropriate trades-based decisions without any worries.
Hope, the technical indicators we’ve explained here will be of help to you. If you have any queries or would like to add something then don’t forget to mention it in the company section below. We would be happy to answer all your questions.
Note: All information & data provided in this article are for educational purposes as well as to give general information on finance & economy, not to provide any professional advice or service. Views & opinions are not biased against the company and do not affect any official policy or any other agency, an organization within the content.