10 Best Day Trading Indicators You Should Know

Day trading indicators are tools that help day traders make informed trading decisions. As you know, day trading is a difficult type of trading. Therefore, you need the latest and most helpful tools to make your endeavor a bit easy.

However, it is important to choose the best day trading indicators that simplify trading for you. In this article, we are going to enlist and provide an overview of the 10 best day trading indicators you should use. Let’s begin right away.

10 best day trading indicators

1. Moving Averages

The moving average is one of the best and most popular day trading indicators. It calculates values by taking the average price of a security over a specified period of time. Day traders often use moving averages as an indicator to help them identify trends and potential buy or sell signals. For instance, you may use a 50-day moving average and a 200-day moving average to identify buy or sell opportunities. If the short-term trend (50-day moving average) crosses above the long-term trend (200-day moving average), this may signal a potential buying opportunity. Conversely, if the short-term trend crosses below the long-term trend, this may signal a potential selling opportunity. Day traders also use moving averages to identify support and resistance levels. Identifying these levels helps greatly in day trading because prices tend to bounce off these key levels.

2. Relative Strength Index (RSI)

The Relative Strength Index (RSI) is another one of the most effective day trading indicators. It is a momentum oscillator that gives a value between 0 and 100. Day traders may use it to measure the strength of a security’s price action. Additionally, it also helps in identifying overbought or oversold conditions in a security. Moreover, you may also use the RSI as part of your trading strategy because it can help you identify potential entry and exit points. For instance, an RSI value of 70 or above means overbought and a trader may look to sell or short the security. Conversely, when the RSI reaches a level of 30 or below, it is considered oversold, and a trader may look to buy or go long the security.

3. Bollinger Bands

Bollinger Bands is also among the most popular day trading indicators. It consists of three lines: a moving average line in the center, and two outer lines representing the standard deviation of the price from the moving average. Firstly, Bollinger Bands helps day traders in determining the volatility of an asset’s price and identifying potential price reversals. Secondly, you can also use it to identify overbought or oversold market conditions. Thirdly, traders may also use Bollinger Bands to identify potential price breakouts.

4. MACD

MACD (Moving Average Convergence Divergence) is another one of the popular day trading indicators. It calculates values by subtracting the 26-period Exponential Moving Average (EMA) from the 12-period EMA. A 9-period EMA of the MACD line is then plotted as a signal line. Day traders generally use MACD to identify short-term price movements and determine when to enter or exit trades. Additionally, day traders also use it to identify potential trend reversals and momentum changes to make more informed trading decisions.

5. Fibonacci Retracement

Fibonacci retracement is also among the most popular day trading indicators. It bases on the Fibonacci sequence of numbers, where each number is the sum of the previous two numbers (0, 1, 1, 2, 3, 5, 8, 13, 21, 34, etc.). The Fibonacci retracement levels are calculated by taking the high and low points of a price range and dividing them by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8%, and 100%. These levels help in identifying potential areas of support and resistance where the price may either bounce off or break through. Moreover, you may also use Fibonacci retracement levels as a guide to identifying potential entry and exit points for trades. For instance, you may look to buy a stock when it retraces to a Fibonacci support level and sell it when it reaches a Fibonacci resistance level.

6. Stochastic Oscillator

The Stochastic Oscillator is also among the popular day trading indicators. It consists of two lines, %K and %D, which are plotted on a scale of 0 to 100. %K represents the current closing price relative to the high-low range over a set number of periods, while %D is a moving average of %K. Traders use this indicator to identify potential trend reversals and generate trading signals. Additionally, you may also use it to identify overbought and oversold market conditions and to confirm the strength of a trend.

7. Volume Weighted Average Price (VWAP)

Volume Weighted Average Price (VWAP) is also among the most popular day trading indicators. It calculates the average price of a security over a given period of time, weighted by the trading volume of each period. VWAP typically calculates values on an intraday basis, with traders commonly using the 30-minute or 1-hour timeframe. It helps day traders to identify the average price at which a security is traded during the day. In addition to average price indication, traders often use VWAP as a benchmark to evaluate their own trades against the overall market. If a trader is able to buy or sell a security at a price better than the VWAP, they may consider it a good trade. You can also use it to identify support and resistance levels as well as potential reversal points in a security’s price trend.

8. Average Directional Index (ADX)

The Average Directional Index (ADX) is a trend strength indicator that measures the strength of a security’s trend, regardless of its direction. Day traders commonly use it in day trading strategies to identify when a trend is strong and likely to continue or when a trend is weakening and may be reversing. The ADX value ranges from 0 to 100, with higher values indicating a stronger trend.

9. On-Balance-Volume (OBV)

On-Balance Volume (OBV) is a momentum indicator that uses volume to predict price changes. It calculates the total volume of security and uses that to predict future price trends. The OBV functions on the principle that changes in trading volume can be a precursor to changes in price. Therefore, traders use it as a day trading indicator to gain insight into whether a stock is being accumulated or distributed. If the OBV is rising, it indicates that the buying pressure is increasing, which suggests that the stock is being accumulated. Conversely, if the OBV is falling, it suggests that the selling pressure is increasing, which suggests that the stock is being distributed.

10. Ichimoku Cloud

The Ichimoku Cloud is a technical indicator that combines several indicators to provide a complete picture of a security’s price action. Traders uses it to identify potential trend changes and support/resistance levels. In fact, the Ichimoku Cloud is a charting technique that provides traders with a comprehensive view of the price action, support and resistance levels, trend direction, and momentum of an asset. In day trading, traders use the Ichimoku Cloud to identify buy and sell signals. When the price is above the Ichimoku Cloud, it indicates bullish, and when the price is below the Ichimoku Cloud, it indicates bearish. Traders also use it for buying or selling signals and to confirm trend direction and momentum.

The wrap-up

Day trading is a popular trading technique where traders aim to make a profit by buying and selling securities within the same day. Day traders use various tools and strategies to make trading decisions, and one of the most important tools they use is technical indicators. Technical indicators are used to identify trends, momentum, and potential reversal points in the market. However, experts and analysts always suggest never to base your trading decisions on a single technical indicator. Use them in conjunction to make the best trading decisions.