Trading seems like rocket science to many but it is a simple thing if one has got a hang of basics. Understanding the different types of trading is essential and one such is intraday trading. Intraday trading is the process of buying and selling stocks on the same day during trading hours.
The major aim of traders for practicing intraday trading is profit creation by taking into account the stock market movements. These stock market movements during the day are helpful for short-term traders who are interested in settling down all their positions by the end of the day. However, information overload is not always very helpful to make a profitable decision.
However, intraday trading involves more risk than regular investments made into the stock market. To earn profits in intraday trading, it is essential to have some basics in place. Let us talk about some important aspects.
What are the Intraday Trading Indicators?
Intraday trading indicators are the tools which can be combined with a comprehensive plan for obtaining maximized returns during the intraday trading. In the case of intraday trading, decisions are always taken based on the price movement in the stock market.
However, if you are interested to book your profits, you will have to do a lot of research. For this, you will need certain indicators and intraday indicators are apt for that. These indicators help you in understanding the stock market and implementing your strategy wisely to get the optimum returns.
The information offered by Intraday Trading Indicators
• Intraday trading indicators share certain important pointers which will help a trader in understanding the situation in the stock market and making better decisions related to profits.
• Intraday trading indicators will help the traders in understanding the direction of the market trend. This direction of the market trend will help the traders to know about the price movements.
• These indicators help in indicating the existing momentum or lack of momentum in the stock market which will hamper the returns.
• Intraday trading indicators help in determining the popularity of securities by the measurement of volume. This volume can help the traders to know about the popularity of the market with other traders.
• The indicators help in knowing if the market is moving or not. This means the intraday trading indicators indicate if there is volatility or not in the stock market for booking profits.
Useful Intraday Trading Indicators
We can list down some of the most accurate intraday trading indicators which are actually of great help to the traders.
1. Moving Averages
The Moving average indicator can be defined as a line on the stock chart which is responsible for connecting the average of the closing rates of the market. This is calculated for a specific period. The reliability of the Moving Averages indicator is directly proportional to the period considered for calculation.
The prices of the securities tend to move in different directions; so, the Moving Averages indicator will help the traders in understanding the principal direction of price movement. The prices of stocks are volatile in nature and this intraday trading indicator will reduce the volatility of prices by which traders can understand the principal trend in the movement of price.
2. Bollinger Bands
The Bollinger bands help in providing an idea about the trading range of the stocks. These bands have 3 lines i.e. the moving average line, an upper limit and a lower one. These lines represent the standard deviation of the stocks. This Standard deviation means the amount by which the price of the stocks increases or decreases with reference to its average value.
3. Momentum Oscillators
The Momentum Oscillators show the strength of demand for a particular share at a given price. If there is an increase in the price of a share and it is on the higher side but at the same time the Momentum Oscillator is falling; it means that the demand for the share is falling and this will lead to a rise in the price of the share. However, if there is a rising Momentum oscillator it means the trend in the market is strong and will continue.
4. Relative Strength Index
The Relative Strength Index (RSI) shows the strength of a particular price of a share by tracking the last 14 periods by default. It helps in a comparison of the share price’s gains and losses and then this information is converted to an index form. This index form helps in narrowing the RSI range between 0 and 100. This index will rise with price rise and will decrease with the fall in the price of shares.
Decoding the Intraday Trading Indicators
The use of above listed most accurate intraday trading indicators will help in knowing about the risk and avoiding the risk. For doing so, the traders should decode the trading indicators and understand what the indicators imply.
1. Decoding the Moving Averages
If there are short term averages that are higher than the long term averages, then you can conclude the market trend as a bullish one. In such a scenario, traders can opt for a decision to buy securities with some specific strategy like stopping loss at the moving average.
2. Decoding Bollinger Bands
In the case of Bollinger bands, suppose a particular stock is trading at a price that is below the lower line of the Bollinger band, then there is a high probability for the price of the stock to rise in the upcoming days. In such a scenario, traders can plan to buy the stocks. On the contrary, if the stock price lies over the upper line then traders can plan to sell shares.
3. Decoding Momentum Oscillators
Suppose, the price of a share has reached a historic high point and the level of the oscillator is different from that of the price; then it indicates decreasing demand. It will also indicate the fall in the price of the stock.
4. Decoding RSI
In the case of RSI, it is advisable to analyze the history and the volatile nature of RSI before you make any decision. Usually, it is advisable that a trader should go ahead and buy a stock when the RSI is 30 and if it has risen to 70 then the trader should sell the stock. However, there might be exceptions and so it is necessary to have an analysis before making a decision.
Best technical Indicators for intraday trading
After we have known about all the most accurate intraday trading indicators, it is quite difficult to decide on the best indicator for intraday trading. There are some tips which will be a help in determining the best indicator for intraday trading.
1. Day Trading with Indicators or No Indicators
Some day traders do not use the intraday trading indicators for any information about market trends. These traders believe that when trading is being practiced based on the price of stocks, there is minimal use of indicators in those cases.
Trading indicators help in visualizing certain facts which may not be visible through a price chart. However, they have a problem of giving the sign of a reversal either very early or very late. Intraday trading indicators are simple tools and the information they provide is dependent on the data about price and volume.
2. Redundant intraday trading indicators
There are a lot of indicators that are the same as the others with very little variations. Many of them belong to the same groups but have slightest of difference. If you are using all of these indicators together, then it would be of minimal help to you as they all would give the same results and sometimes can even worsen the results.
You can pick an indicator from each group and use them for references. This would somehow reduce redundancy up to a certain extent and would help in getting coherent results.
3. Intraday trading indicators can be combined
In some cases, indicators can be combined to obtain information about factors like the direction of market trends, trading opportunities, etc. This combination of indicators can be helpful for traders to maximize their profits. However, the factors on which combination of indicators depend can be different for different traders and might depend on the trader’s choice of trade.
Precisely, there is no such single indicator that can be considered as the best indicator for the intraday trading indicator. You can use the indicator of your choice in such a way that it becomes more productive for you.
Hence, intraday trading indicators are just tools and their way of use will determine their productivity. The use of too many indicators should be avoided by traders. As a trader, you should know certain details related to your indicator like its drawbacks, its tendency to miss good trades or produce false signals, etc. These factors would help you in using your indicators more productively. For those who need expert advice on intraday trade, getting in touch with experts of IndiaNivesh is a safe bet as their experienced team is available to guide using the right tools.
Disclaimer: Investment in securities market / Mutual Funds are subject to market risks, read all the related documents carefully before investing.