Glance at Intraday trading indicators: The stock market is a dynamic world. Trading and investing in the stock market require a lot of research and analysis.
Technical analysis is a type of analysis in which traders use price and volume data to make trades. Technical analysis entails reading charts and observing trading patterns and indicators.
Intraday trading occurs when a trader buys and sells on the same day before the market closes. There are several indicators that provide information, and this article will focus on intraday trading indicators.
What Are trading indicators?
Trading indicators are tools that are used in technical analysis. Trading indicators help in indicating where the price will go next using mathematical calculations.
There are four classifications of indicators.
- Trend – These particular indicators indicate the trend of the market or the direction in which the market is moving.
- Momentum – These indicators indicate the strength of the trend in the market and whether there will be a reversal in the market.
- Volume – Volume indicators indicate the change in volume with time. It also indicates the number of stocks being bought and sold over time.
- Volatility – It indicates how much the price is changing in a given period, and it gives an indication of how much the price is changing in the present.
Intraday trading indicators #1 – Moving Averages
Moving averages are technical indicators used by traders to find the trend of the market, they are very favored tools.
Moving averages plot the data on a line that smooths out the price fluctuation, allowing the investors to determine when to buy and when to sell the stock.
Moving average is a trend indicator that uses the price data, there are several types of moving averages like simple moving average, exponential moving average, weighted moving average, etc.
The exponential moving average is used for short-term trades or intraday trades.
The difference between the simple moving average and the exponential moving average is that the simple moving average does not give importance to new price points, but the exponential moving average gives importance to new price points.
The exponential moving average is very reactive to new prices, and traders believe new data is always better.
They are described as 20 EMA, 50 EMA, or 200 EMA the 20, 50, and 200 are the time frames meaning, the moving average is calculated for 20 days, and 50 days respectively.
Intraday trading indicators #2 – Relative Strength Index (RSI)
The relative strength index is a momentum indicator used in technical analysis, that measures change in the price change to evaluate if the stock is overbought or oversold. RSI is a line graph that moves between the values 0 to 100.
The general thumb rule for RSI is that if the stock’s RSI is above 70 then it is in an overbought zone or it’s overvalued and on the contrary, if the stock’s RSI is below 30 then it is in the oversold zone or it is undervalued.
RSI is calculated over a 14-day period.
What most traders do is when the stock’s RSI dips below 30, they wait, and when it breaks 40, they buy the stock. The idea is that the stock has been oversold and will return to its normal price range.
Intraday trading indicators #3 – Bollinger bands
Bollinger bands are technical indicators that show the volatility of a stock. Bollinger bands are calculated using the standard deviation from the moving average or mean.
A standard deviation is a measure in statistics that measures the volatility of return using historical prices.
Bollinger bands have two standard deviations, above and below. These bands signify that 95% of the stock’s historical price will be within these bands.
The price may go outside the band, but it is assumed that it will come back within the band. This process is called mean reversion.
If the bands are in a tightened position, then there is less volatility, and if the bands have a huge gap in between them, they are more volatile.
Intraday trading indicators #4 – On Balance Volume (OBV)
On balance volume indicator is a volume indicator. This indicator assumes that the volume goes hand in hand with the price movement.
OBV believes that the market changes are around volume only, and the indicator will project major events in the market.
OBV tries to capture the sentiment of the market through volumes and predicts whether the market is bullish or bearish.
OBV is used to track big buy and sell orders, making retail investors catch up with institutional investors. Though OBV is plotted on a line graph, the numerical value of this is not important.
The slope of the OBV is where the analysis should be done.
Intraday trading indicators #5 – Stochastic Oscillator
The Stochastic Oscillator, like the RSI, is a momentum indicator. It is used to check if the stock is overbought or oversold. It is a line graph that has a value range of 0 to
100. If the stock’s oscillator is above 80, then it is overbought and if it is below 20, then it is oversold.
The major difference between the RSI and the stochastic oscillator is that it has two indicators: one is called the fast (K) and the other is called the slow (D). A combination of both of these gives a clear idea of the stock.
The stochastic oscillator is calculated by comparing the closing price of the stock with the stock’s range over a period of time. This indicator is dependent on the historical prices of the stock.
These are the five most used intraday trading indicators. To summarise moving average is a trend indicator that smooths the price data to indicate the direction of the market.
RSI is a momentum indicator that tells if the stock is overbought or oversold.
Bollinger bands are indicators that show the volatility of the stock it has two bands upper and lower which indicate the range of the price.
OBV is a volume indicator that indicates the price with volume which is helpful in tracking big movements in the market.
A stochastic oscillator is a momentum indicator similar to RSI.
We urge the readers to explore more on trading indicators and technical analysis, this is how we become successful traders by learning more.
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