The stock market is volatile, especially if you are involved in intraday trading. However, it is the volatility of the stock market that makes it so lucrative for investors. Sudden peaks can result in significant profits, provided you follow intelligent and effective intraday trading strategies.
Published on 17 March 2023
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Whether you are a novice or seasoned investor, understanding the functioning of the intraday stock market and using accurate intraday trading indicators is a must for success. By using the best indicators for intraday trading, you can aim to minimise risk and losses while maximising profits.
Here is a quick guide on intraday trading indicators and some of the most accurate intraday trading indicators you can use:
What is an indicator?
An indicator is a mathematical calculation that helps predict the expected price of a stock, identify the entry and exit point in trading, etc. Indicators typically rely on historical price and volume data to provide crucial information regarding future stock prices.
Typically, intraday trading indicators offer the following insights:
The trend of the market or the direction in which the stock market is moving
The strength of a particular market trend and any likelihood of trend reversal impacting stock prices.
The number of stocks being traded at a specific price. This helps indicate the strength of a move or trend.
The change in price in a period.
Which are the best indicators for intraday trading?
If you are an investor focused on intraday trading, here are some indicators for day trading:
Moving Averages:
Moving averages is one of the best indicators for intraday trading. In this method, the average closing stock prices are plotted over a specific period, allowing you to understand the underlying price movement.
Stock prices are highly volatile, and moving averages help phase out the volatility to determine the stock price and its movement. You can also use moving averages intraday trading indicator to know the market trend, reversal of trends, entry and stop-loss points, etc.
The longer the investment period, the more reliable is the moving average as an indicator for day trading. If the short-term moving average is higher than the long-term, the market is bullish and vice versa.
Bollinger Bands:
Bollinger bands are another useful intraday trading indicator that depicts market volatility. These bands comprise three lines – a 20-day moving average in the middle of a +2-standard deviation (top) and a -2-deviation band (bottom). The stock price moves between these three lines
In the case of high volatility, the Bollinger band becomes wide. In the case of low volatility, the gap reduces. If a stock is trading below the Bollinger band, its price can potentially rise. Hence, a buy is advisable. Alternatively, a stock trading above the Bollinger band could witness a fall, which means a sell position is suitable.
Relative Strength Indicator (RSI):
RSI is an effective intraday trading indicator to understand the momentum in the market. It is plotted as a single line with a scale of 0 and 100, where 100 represents the maximum limit.
If the RSI value is above 70, it indicates the particular stock is overbought in the market. However, a reading below 30 depicts undersold shares. In terms of the broader market, an RSI value above 50 means the market is moving upward, and a value below 50 indicates downward market momentum.
Momentum Oscillators:
The stock market is volatile, and in an intraday trading scenario, stock prices move up and down quickly. However, not all price movements are steep. These are typically short-period cycles that are neither bearish nor bullish. These price changes depict the price momentum, specifying the market direction (upward or downward).
Momentum oscillators can also help identify whether a price trend will potentially lead to a reversal. Oscillators depict price movement between 10 to 100 and are effective when a stock price reaches a new level – high or low.
Using momentum oscillators can help determine if the price level will rise or fall depending on the market sentiments. If a stock price is at its all-time high or low, it could indicate a decreasing or increasing demand for the stock, respectively.
Using these best indicators for intraday trading can help in potentially reducing loss and maximising profits. However, there is no guarantee, and as an investor, it is advisable to place trades after exhaustive technical and fundamental analysis. You can also consult a professional broker to help you successfully engage in intraday trading while minimising risk and improving profits.
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Intraday trading involves more risk compared to the regular stock market. Thus, if you want to avoid making losses, you must understand the basics of the concept. Traders must only invest the amount they are comfortable in losing to avoid financial disasters.
Ideally, one should look at two-three intraday trading indicators to improve the efficiency of their decisions.
If a stock is trading above the Bollinger band, it has a risk of potential fall. However, if the stock is trading below the Bollinger band, there is a chance stock prices might rise in the future.
Yes, if needed, it is possible to combine two indicators for intraday trading. For instance, you can use a combination of moving averages and RSI to get double confirmation if the stock is overbought or oversold.
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Intraday trading involves more risk compared to the regular stock market. Thus, if you want to avoid making losses, you must understand the basics of the concept. Traders must only invest the amount they are comfortable in losing to avoid financial disasters.
Ideally, one should look at two-three intraday trading indicators to improve the efficiency of their decisions.
If a stock is trading above the Bollinger band, it has a risk of potential fall. However, if the stock is trading below the Bollinger band, there is a chance stock prices might rise in the future.
Yes, if needed, it is possible to combine two indicators for intraday trading. For instance, you can use a combination of moving averages and RSI to get double confirmation if the stock is overbought or oversold.
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