The Best Technical Indicators for Day Trading In Any Market

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One of the most common obstacles new traders face is choosing a technical indicator. They see a trader making money and immediately try to figure out what their charts and monitors are doing for them. “If I have the best indicators, day trading will be easy. But which indicator is the most accurate?” Worst of all, is implementing several indicators and finding that trading becomes harder, due to information overload.

Click here to jump straight to the list of indicators.

A comic showing that people mostly gravitate to finding secret day trading indicator settings rather than managing their own risk.

Feeling confused while risking your money isn’t good. But you should be careful not to assume that professional traders have some magical indicators that give them a major advantage over the best retail traders, to the point that you can’t make any money. This type of belief causes beginners to feel hopeless at the start, losing whatever little confidence they had when learning some of these things for the first time.

If you have some of these questions or assumptions, that’s okay. I’ve got some bad news for you, but good news as well.

The Bad News

The bad news is that any indicators I share with you aren’t going to magically make you trade better. Only you can make yourself trade better, and if you have larger issues than organizing your charts, the indicators won’t help.

In addition, implementing several indicators is no guarantee that you will have the information needed for your particular strategy.

A new trader stares at his laptop in frustration, unsure which indicators are the best for day trading.
If this is you right now, I understand.

The Good News

The good news is that the indicators here are completely free, available in almost any trading software, and chances are, you’ve already heard of them. It also means that you don’t need much to start learning them.

So why, then, is it still so hard to become a successful day trader?

One reason is that the indicators don’t make the successful trader; it is the trader that uses the right overall system, tailored to his personality and risk profile, that becomes successful.

With that said, there are definitely some main indicators that you’ll find most traders using. There are others too, but we won’t waste any time on those here. Let’s focus on which ones are the most popular, and why.

The Best Indicators For My Day Trading Might Not Work For You

When newer traders are told that they don’t need a single magic indicator over another, they feel even more lost. Why doesn’t everyone just do the same thing as some successful trader on YouTube? One uses the Relative Strength Index (RSI) and Bollinger Bands, but this other big trader on Twitter uses Stochastic Oscillators. Which one is better?

It may seem like a coin flip at some point. When you rack your brain trying to make sense of too many different indicators at once, you get nowhere. Because of this, I strongly recommend only using one main indicator at a time.

I have not experimented with more than a handful myself. Of the most common indicators I have heard of, I can count the ones I tried on one hand. The most common momentum indicator, which I still use, is the Moving Average Convergence Divergence indicator, otherwise known as MACD.

I briefly used RSI when starting out, though I didn’t use it long enough to learn it inside out. I didn’t mess with the charts too much when learning to use the MACD, which turned out to be a great decision.

MACD did not work flawlessly in the beginning, and I made many mistakes in the process. But the point is I stuck with it. I trusted the person who taught me about it, and it has only worked better the more I used it.

The MACD is one of the best indicators for day trading, and this image shows an example of the NQ hourly with MACD.
The MACD, shown below the price chart above, calculates a slope using multiple moving averages, and plots this calculated MACD line against a slower MACD signal line, to paint a picture of momentum.

Today I believe each of the main momentum indicators can be the foundation of a successful day trading strategy.

But what you use successfully might work well for you and not for others. The way I use MACD now is personalized from the thousands of hours I’ve spent watching charts and tweaking my strategy accordingly. Thus, I cannot tell you to simply apply MACD and expect similar results.

The nuance in these indicators can only be learned by spending time using them. Keep that in mind while you are testing indicators, and don’t feel pressured to use one just because it’s on this list.

If there aren’t any single best indicators for day trading, what should I use?

Admitting my bias here, I would consider MACD and the Exponential Moving Averages to be among the best indicators. They are not overly complex, and they paint a vivid picture for traders who get familiar with them.

I couldn’t see myself trading successfully without them, and I wouldn’t bother trying. I highly recommend testing them, in case you find that they suit your trading style.

However, if you are religiously opposed to using my recommendations, RSI is one that can serve as a replacement for the MACD. You would still need to devote many hours to learning the ins and outs before you can expect any true consistency, but you can make it work.

As for moving averages, I find it hard to imagine using the Simple Moving Average instead of the Exponential Moving Averages. At the same time, people do use them everyday. I am sure there is a way to make them work for you.

The most common indicators that traders use, besides MACD, are Moving Averages, Bollinger Bands, RSI, Stochastic Oscillator, and On-Balance Volume. You have likely heard of at least one of these by now. Let’s take a look at each.

Simple Moving Average

With the Simple Moving Average (SMA), a plotted line averages the closing price of each candle for a particular instrument. A major drawback is that this moving average is slow during volatile price changes. As a result, most traders tend to prefer the EMA.

Exponential Moving Average

The Exponential Moving Average is both more adaptive and more interesting, in my opinion. EMAs assign more weight to recent price action, which results in the plotted line following the recent candles a little more closely than with an SMA.

One of the common indicators used in day trading is a moving average, and here the exponential moving average is shown to be the best version.
The Exponential Moving Average sharply adjusts based on sharp price moves, while the Simple Moving Averages waits longer to react.

In the picture above, there is both an EMA(7) and an SMA(7). Focus on the region inside the box from 8:15 to 8:45 on the chart. Can you tell which is which?

While the lines are very close together for the most part, notice the change when the market rapidly reverses. When the price falls sharply, there is a delay in the SMA to recognize the drop.

Because of moments like these, the SMA is less reliable for traders who want to enter the market with precision. The EMA recognizes and adjusts to the new price immediately on the large drop, while the SMA continues higher for another three candles after the top candle closed.

Bollinger Bands

This intraday trading indicator helps determine whether prices are high or low, relatively. Using the moving average, an upper limit and a lower limit together, the Bollinger Bands indicator helps paint a picture of how far price may move in either direction in the immediate future. When the bands constrict around the price, it can be an indication that a sharp price move may come soon. This provides traders with an understanding of the instrument’s trading range. See an example of the Bollinger Bands widening during a sharp move on AAPL below:

Bollinger Bands chart an upper and lower limit of the price to help traders understand the recent range.
The Bollinger Bands are like a tunnel, following price and its extreme ranges to either side.

Relative Strength Index (RSI)

RSI is a momentum indicator, similar to MACD and Stochastics, used to identify extremes in price action. When an instrument is considered overbought or oversold based on the RSI settings, traders look for signs of a trend to move in the opposite direction, often with a sharp reversal. You can learn all about the RSI here.

The indicator was developed by J. Welles Wilder Jr. and introduced in his seminal 1978 book, New Concepts in Technical Trading Systems.

In the image below, you can see how AAPL moved above the overbought limit on the RSI briefly, before experiencing a sharp reversal downward, plummeting from about 175 to the 150s in about 2 or 3 weeks. Traders look to short a stock during times they believe the market is overbought, and the RSI helps to identify those potential areas.

AAPL experienced a sharp reversal once the Relative Strength Index Indicator reached an overbought level, shown in this image.

Stochastic Oscillator

The Stochastic Oscillator measures the momentum of price movements, and offers an adjustable range for highs and lows. The idea is that before the price begins to actually change in either direction, the momentum often shows a change that can be measured. By recognizing this, traders can take advantage of trend reversals before they have already moved substantially in the new direction.

This chart below shows an example of TSLA with one of the few Stochastic indicators available on ThinkorSwim. At about $370, the Stochastic began declining. It had been in the overbought range for a few days, and a bearish harami formed shortly after. TSLA dropped in price by over $100 per share in the next few weeks.

The Stochastic Oscillator is shown here on a chart of TSLA.
The Stochastic Oscillator charts an upper and lower limit, similar to RSI.

On-Balance Volume

Joseph Granville is the man who developed the On-Balance Volume metric in the 1963 book Granville’s New Key to Stock Market Profits. Granville describes OBV as a “spring being wound tightly.” The idea is that when volume experiences a sharp change without any correlated move in price, this information can be used by traders to predict an upcoming dramatic price change.

OBV is a technical trading momentum indicator, using volume flow to try to predict changes in price. In addition, it is considered to be a leading indicator, which means that it may serve as a more powerful predictive indicator. On the other hand, it also produces more false signals.

In the chart below of Chipotle (CMG), the OBV rises steadily for a few weeks leading to an earnings report on April 25, 2018. The rising volume served as a clue that the uptrend was gaining strength over the preceding two months.

The On-Balance Volume indicator is shown here plotted below the price of NQ futures.
The OnBalance Volume indicator can go above or below 0 based on the price closes and volume at each close.

So which indicator should you use? Are the MACD and EMAs still the best indicators for day trading?

There is no harm in trying each of these out and seeing what suits you best. I recommend paper trading in general, or considering a funded trading account if you are interested in trading futures. Either way, be sure to get enough practice.

You won’t immediately know which of these indicators, if any, are going to provide you with the right foundation for your strategy. It will take some experimentation and logging your results somewhere that you can analyze them for yourself.

When I began trading, I used the default MACD settings and mostly two Exponential Moving Averages. I didn’t bother changing the settings at all for months, obliging instead to study the price action. The shape of the indicators moved sometimes in unison, and other times on their own. Over time, I began to notice patterns within the indicators themselves, and this is the real secret behind using these tools successfully.

I have since then figured out how to apply three EMAs and a slightly faster MACD to locate the ideal trading setups for me.

It’s almost guaranteed that you will go through a similar process of tweaking your chosen indicator(s), but that’s okay. It is part of the trading journey, and I don’t recommend looking for any shortcuts on this part. If you have any luck, you will figure out the nuances within your indicators quickly, but don’t count on it happening overnight.

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