12 best Day Trading Indicators – Technical Chart Analysis

I will show you the best technical indicators that you should use as a trader for your chart analysis in order to place clean trades and make profits on a daily basis. Let’s go!
Are you a trading beginner or already in advanced trading? Have you ever wondered if technical indicators work at all?

Chart analysis is both a blessing and a curse. Very few people understand how to use it to trade successfully.

In this article we will therefore focus on the 12 best technical indicators and look at how they can be implemented in a day trading strategy.

I also show where to find them in Metatrader 4 for (almost) all indicators.

We consider four categories in total. These are the technical indicators, which we will explain in a moment:

1. trend indicators

  • Moving Average (SMA/EMA)
  • Moving Average Convergence Divergence (MACD)
  • Parabolic SAR
  1. momentum indicators
  • stochastic oscillator
  • Relative Strength Index
  • Commodity Channel Index
  1. volume indicator
  • On Balance Volume
  • Volume Price Trend
  • money flow index
  1. volatility indicators
  • Standard deviation
  • Bollinger Bands
  • average true range

Before we start with the 12 probably best technical indicators, we will briefly discuss the purpose of the chart technique.

What is chart analysis and what are technical indicators?
Technical analysis is a method used in stock market trading to evaluate investments and identify trading opportunities by analyzing statistical trends from trading activities such as price movements and volumes.

Unlike fundamental analysts who attempt to assess the intrinsic value of a security, technical analysts focus on patterns of price movements, trading signals and various other analytical charting tools to assess the strength or weakness of a security or asset.

Technical analysis can be used for any underlying instrument with historical trading data. This includes stocks, futures, commodities, bonds, currencies and other securities.

So much for the classic, dry interpretation.

Now the innovative short version:

With the chart technique, historical price movements and patterns of an asset are analyzed in order to be able to make deductions for the future.

People love simplicity, especially in stock market trading. With the help of technical indicators we want to receive signals whether a market is about to rise or fall.

Here a not so serious work of art to start with.

The moving average is considered one of the most used indicators in stock exchange trading.

Moving Average is translated as “moving average”. In this case, an average is formed in a certain period, which is shown as a line in the chart.

As a rule of thumb, if the price of the stock, forex pair, index, etc. is below the moving average, then there is a downward trend. If the price is above the line, then it is currently in an upward trend.

However, there is not only a moving average, but also different characteristics. Among the most common averages are

  • Simple Moving Average (SMA)
  • Exponential Moving Average (EMA)

Now there is the possibility to look at different time periods. If you choose the period “200” for the SMA, it means that the simple, moving average of the last 200 candles is formed.

With the EMA 200 the last 200 candles are also considered, but the “younger” candles are given more weight than the “older” candles.

In the following chart we see the two moving averages.

It is important to know that the line runs differently in each time unit. This is because the closing prices of the last 200 candles in the 4-hour chart are different from the closing prices of the last 200 candles in M5.

How do traders use moving averages?

In addition to providing a rough indication of whether an asset is in an up or down trend, these lines also serve as resistance or support. Especially in higher time units, ricochets occur when touching the line, as traders use the marks to end existing positions and build new ones. This regularly makes itself felt in the order book.

2. Technical indicator: Moving Average Convergence Divergence (MACD)

As mentioned before, there are several moving averages. The MACD is also a popular tool.

The concept behind the MACD is quite simple. Essentially, it calculates the difference between the 26-day and 12-day exponential moving averages (EMA) of an asset (Forex, stock, etc.).

Of the two moving averages that make up the MACD, the 12-day EMA is obviously the faster one, while the 26-day average is slower. These parameters can also be set individually, but the ones mentioned here are mostly used.

When calculating their values, both moving averages use the closing prices of the respective period.

The MACD chart also shows a nine-day EMA of the MACD itself, which serves as a trigger for buying and selling decisions. The MACD generates a bullish signal when it moves above its own nine-day EMA, and sends a sell signal when it moves below its nine-day EMA.

Most traders use the MACD indicator to measure the strength of the price movement, not necessarily to determine the direction of a trend.

3. technical indicator: Parabolic SAR

The parabolic SAR (SAR stands for Stop-and-Reverse) is a popular indicator used primarily by traders to determine the future short-term momentum of a particular asset.

The parabolic SAR indicator is shown on the chart as a series of points placed either above or below the price (depending on the momentum of the asset).

A small point is placed below the price if the asset’s trend is upward, while a point is placed above the price if the trend is downward. As you can see in the following chart, transaction signals are generated when the position of the points changes direction and is placed on the opposite side of the price.

Entry signal with the Parabolic SAR:

When the current price reaches par. SAR from below and the indicator changes direction, a buy signal is generated.

If the current price touches the par. SAR from above and the indicator changes direction, a sell signal is generated.

Exit signal with the Parabolic SAR:

The stop loss is set directly at the level of the indicator level, above the price for short positions and below the price for long positions. The stop loss is actively replenished with each new candle.

However, the take profit is not changed once it is set immediately.

4. stochastic oscillator

The Stochastic Oscillator is a momentum oscillator that oscillates in a range between 0-100. Typically the Stochastic Oscillator is used for three things:

Identifying oversold and oversold levels, detecting divergences and identifying setups or bullish and bearish signals.

Traditionally, values above 80 are considered to be in the oversold range and values below 20 are considered to be oversold. However, these are not always an indicator of an imminent reversal, as very strong trends can sustain overbought or oversold conditions, over a long period of time.

The divergence between the Stochastic Oscillator and the price trend is also considered an important reversal signal. For example, if a bearish trend reaches a new lower low, but the oscillator is printing a higher low, this could be an indication that the bears have exhausted their momentum and a bullish reversal is imminent.

5. Relative Strength Index (RSI)

Similar to the Stochastic Oscillator, the Relative Strength Index has a momentum indicator that shows a range of 0-100. This is also used to determine an overbought or oversold condition.

The standard is to use 14 periods to calculate the initial RSI value.

What is the difference between Relative Strength Index (RSI) and Stochastic Oscillator?

The Stochastic Oscillator assumes that closing prices should close in the same direction as the current trend. The RSI tracks overbought and oversold levels by measuring the speed of price movements. Analysts usually use the RSI, but both are well-known and respected technical.

6. place for our technical indicators: Commodity Channel Index

The third and last momentum indicator in our presentation of technical indicators is the CCI. It is also used to identify overbought and oversold market phases.

The CCI is also used to assess the strength of a price trend. This information allows traders to determine whether they want to enter or exit a trade, give up a trade altogether, or expand an existing position.

If the CCI moves from a negative or near-zero range to above 100, this may indicate that the price is initiating a new upward trend. Once this happens, traders can look for the price to fall, followed by a price recovery and the CCI to indicate a buying opportunity.

This technical indicator can also be found in the Metatrader in the “Oscillators” category, as introduced in point 5 (RSI).

7. on balance volume

After you have got to know three oscillator indicators, we now turn to three volume indicators. In the following technical indicator, however, the momentum also plays a role again.

The On Balance Volume Indicator (OBV) is a technical momentum indicator that relates volume to price change.

The indicator is quite simple. If the closing price of the current bar is higher than the previous bar, the volume of the current bar is added to the previous OBV. If the closing price of the current bar is lower than the previous one, the current volume is subtracted from the previous OBV.

The OBV indicator is designed to determine when the “smart” money and the “stupid” money is active. It is assumed that the money that predominantly moves the markets – institutional funds – are most active on low volume days, while private traders and investors are most active on high volume days.

When the OBV changes to a rising or falling trend, a “breakout” has occurred. Since OBV outbreaks usually precede price breaks, investors should buy long on balance volume upbreaks. Similarly, investors should go short when the OBV makes a downward breakout. Positions should be held until the trend changes.

8. volume price trend

The VPT (Volume-Price Trend Indicator) is used to determine the balance between supply and demand of a security.

The percentage change in the price trend indicates the relative supply or demand of a particular security, while the volume indicates the force behind the trend. The VPT indicator is similar to the On-Balance Volume Indicator (OBV) in that it measures the cumulative volume and provides the trader with information about the cash flow of a security.

The indicator consists of a cumulative volume line that adds or subtracts a multiple of the percentage change in the price trend and the current volume of a stock, depending on the upward or downward movement of the security.

A signal line, which is only a moving average of the indicator, can be used to generate trading signals. For example, a trader can buy a stock when the VPT line crosses its signal line, and sell when the VPT line crosses its signal line.

In Metatrader I could not find this indicator at the time of research for this article.

9. technical indicator: Money Flow Index

Among the technical indicators, the Money Flow Index (MFI) is the one that is an oscillator as well as a volume and price indicator.

The MFI is used to identify overbought or oversold levels in an asset. It can also be used to identify deviations that warn of a reversal in the price trend. The oscillator moves between 0 and 100.

Unlike traditional oscillators such as the Relative Strength Index (RSI), the Money Flow Index contains both price and volume data, rather than just price alone. For this reason, some analysts refer to the MFI as a volume-weighted RSI.

One of the ways to use the Money Flow Index is when there is a divergence. Divergence occurs when the oscillator moves in the opposite direction to the prevailing market price or trend. This is a signal for a possible trend reversal in the current price development.

10. standard deviation (standard deviation)

We leave the volume indicators and now look at the last category of our technical indicators, the volatility indicators. We start with the classic standard deviation.

The standard deviation indicator compares the current price movement and its historical price movement.

We must always remember that markets consist of volatile times when prices “step on the gas” and then at some point become quiet and trendy again.

The standard deviation is an indicator that measures the magnitude of the recent price movements of an asset to predict how volatile the price may be in the future.

It helps in deciding whether price volatility is likely to rise or fall. Large price movements follow small price movements and vice versa.

The default setting in this indicator is “20”. Using this indicator in the daily chart means that it measures the standard deviation of the last 20 days. If you want to look at a longer period and want to set the indicator less sensitive, you can of course change this parameter as you wish.

11. bollinger bands (Bollinger Band®)

Perhaps the best known indicator in the trader scene is actually a protected term, attributed to its inventor John Bollinger.

It is a technical indicator defined by a series of lines representing two standard deviations (positive and negative) away from a simple moving average (SMA) of the security price.

Bollinger Bands® are a very popular technique. It involves the market being overbought when the price of the security approaches the upper band, and being oversold as prices approach the lower band.

The squeeze is the central concept of Bollinger Bands®. When the bands are close together and restrict the moving average, this is called a squeeze. A squeeze signals a period of low volatility and is seen by traders as a potential sign of increased volatility in the future and potential trading opportunities.

Conversely, the wider the bandwidths are, the more likely it is that volatility will decrease and the greater the opportunity to exit a trade.

However, these conditions are not trading signals. The bands give no indication of when the change might occur or in which direction the price might move.

The chart shows a middle blue band, an upper band and a lower band. Most charting programs give the outer bands a different color than the moving average in the middle, but in my opinion this is not possible with MT4. Nevertheless, you should be able to see the sense and purpose even in the monotonous visualization.

About 90% of the trading time the price quotes within the bands. Every breakout above or below the bands is a big event. The breakout is not a trading signal. The mistake most people make is to believe that the price that reaches or exceeds one of the bands is a signal to buy or sell.

Breakouts give no indication of the direction or magnitude of future price movement. They are merely an indicator to provide traders with information about price volatility. John Bollinger suggests using them with two or three other uncorrelated indicators that provide more direct market signals (e.g. RSI).

12. average true range (ATR)

Average True Range is simply translated as “average true range”.

The Average True Range (ATR) is a technical analysis indicator that measures market volatility by decomposing the full range of an asset price for that period.

The inventor (Wilder) originally developed the Average True Range for commodities, but the indicator can also be used for other assets. Simply put, a volatile security has a higher ATR and a security with low volatility has a lower ATR.

The ATR can be used by traders to enter and exit trades, and it is a useful tool for expanding a trading system. It was created to enable traders to measure the daily volatility of an asset more accurately through simple calculations. The indicator does not indicate price direction, but is primarily used to measure volatility caused by gaps and to limit up or down movements.

I myself use it from time to time to find out how many pips a currency pair makes on average per day. For example, if it has a daily spread of 100 pips and today (without a fundamental event) it has already made 90 pips, then I consider whether it makes sense to enter the market today, as there may soon be a quiet sideways phase.

The chart below shows that the range in the AUDUSD is between 72 and 187 pips and that volatility has increased significantly recently.

Now you have learned about the 12 most common technical indicators in trading.

And now?

The bitter truth about technical indicator

Many private traders hope that the indicators of chart technique will give them security that they have not been able to find anywhere before.

The truth about technical indicators is that they do not make you rich!

You should never look at indicators in isolation and certainly not trade just because the price has touched a Bollinger Band (etc.). Experience shows that the false signals produced are around 50%.

So why all this time?

Technical indicators can help you make better decisions within a proven trading strategy. This concerns primarily entries and exits.

I personally only use the ATR and moving averages of the presented tools as orientation for possible exits from a trade. I expect a trend change at certain chart zones and would like to close accordingly before. Here technical indicators can be a help, but nothing more.

What can you do now?

Before you delve deeper into the world of trading indicators, I advise you to take a look at the technical indicators:

Do not waste your precious time sucking up meaningless information.

If you want to trade successfully, you need a working trading strategy that consists of more parameters than just a few technical indicators.

Familiarize yourself with new trading and you will get a proven strategy! It has been traded by investment banks and hedge funds for decades.


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