Intraday trading indicators combine volumes and prices to get a reliable source of information on the likely direction of the stock price. Normally, price is an indicator while volumes provide the confirmation to a trend. These trading indicators tell you the profit potential in the midst of market volatility and also give a colour of the underlying momentum of the stock and the market. Trading indicators are not only used to gauge the direction of the trend but also the intensity of the trend so that the intraday trader can decide upon the trade and its intensity.
Key Intraday Trading Indicators that can be Applied
- The most common indicators for intraday trading are the moving averages. You have simple moving averages and also exponential moving averages for a more granular picture. Measures like the 50-DMA, 100-DMA and the 200-DMA capture the trend and the shifts in trend. Normally, the DMA is charted over a longer period of time to get reliable information.
- Relative strength index (RSI) is another popular measure in intraday trade charting. The RSI score varies between 0 and 100 which shows you the strength of the trend. This method is used to compare the share price gains and losses and is one of the most popular indices used by intraday traders. You normally buy at RSI of 30 and sell at RSI of 70.
- A slight improvement over the moving averages is the Bollinger Bands which is again used quite frequently by intraday traders. The Bollinger Bands are indicative of the upper and lower bands of the stock price and enables the intraday trade to decide at what price to buy and at what price to sell so as to maximize the chances of being profitable.
- Another very important measure is the momentum oscillators. These momentum oscillators also range between 0 and 100 and show the extent and the intensity of the momentum of the stock. This is more useful when you are trying to trade a stock that is showing a trend that is divergent with the market as a whole.
- Supports and resistances are not exactly indicators but they form a very important part of intraday traders charting dictionary. Intraday traders use these support and resistance levels not only to initiate trades but also to set their stop loss levels. Supports and resistances also give a strong indication when the price breaks out through these lines supported by volumes.
How Intraday Traders can Make the Best of these Indicators
Intraday trading indicators do not give the trader assurance of profits but by ratifying intraday trades with these intraday indicators, the risk can be substantially reduced.
- Traders can use these intraday indicators to maximize their returns. When you are trading on small spreads with just a 5-hour time window, every basis point of return that you add makes a big difference to your final tally. That is what intraday indicators help you to do.
- Intraday indicators are a very good method of minimizing risk of intraday trading. When you have a scientific basis for identifying maximum profit and maximum loss levels, then your risk is automatically reduced. These indicators also provide a structure to your intraday trades.
- Intraday indicators help you to identify the shifts in momentum because that is what the price patterns follow. An intraday trader makes money when they are able to spot a trend a few minutes before the other traders. These signals can be picked up by a close analysis of momentum indicators and how the momentum is shifting either in favour of stocks or against these stocks.