Intraday Trading – Technical Indicators
Intraday trading Indicators – Moving Averages:Market analysts and traders
often talk about 50DMA and 100 DMA. What are these? They are daily moving averages.
Basically moving averages are calculated as a continuous series of prices to smoothen
out the ups and downs in the price. Moving averages can be arithmetic or exponential
or even logarithmic. Moving averages are useful in identifying when the stock is
likely to break out either on the upside or the on the downside. As an intraday
trader you make most money when you are able to time your trade around the time
when these moving averages are breached. The basic thumb rule of thumb in using
moving average analysis is that if the short term averages are exceeding the long
term moving averages, it is a bullish signal. For example if the 50DMA is above
the 100 DMA and the 100 DMA is above the 200 DMA and so on; then it can be interpreted
as a bullish signal. The reverse will be interpreted as a bearish signal.
Indicators for intraday trading – Bollinger Bands:The Bollinger is actual
an extension of the concept of moving averages we saw above. The DMA only captures
the mean values of the prices. It does not compare the stock based on volatility
of the stock. For intraday traders, the intraday volatility in terms of the gap
between high/low/open/close is very important. Volatility is very important for
an intraday trader for two reasons. Firstly, it explains the extent of risk for
the intraday trader. Normally, higher the volatility higher is the risk for the
trader and that impacts the choice of stop loss and also the choice of profit target.
Secondly, Bollinger Bands use range as a measure of standard deviation which enables
to define the trading range in a more granular fashion. This is useful for an intraday
trader because it helps them define the range within which to trade.
Indicators for intraday trading – Oscillators: Oscillators are very useful
when you want to make the best of trading in a range.The beauty of intraday trading
is that you need to neither be bullish nor do you need to be bearish to take a view.
You can take a view on the cycle and actually ride the cycle in both directions.
In this endeavour, oscillators can be of immense help. Oscillators are extremely
useful in identifying when the market sentiments are turning so that the intraday
traders can position themselves accordingly. When the oscillator does not keep pace
with the price movement it is an indicator that the price rise could weaken and
traders can position themselves on the short side of the trade. Oscillators basically
capture the build up momentum and the loss of momentum which can help your design
your trading strategy as a buy-on-dips or a sell-on-rises.