Best Technical Indicators For Day Trading

Best Technical Indicators For Day Trading

Using Technical Indicators When Day Trading

The idea behind technical indicators is that they will provide signals about when to enter and exit a trade (and manage a trade, for example when to increase or decrease a position). The day trading market is normally volatile and unpredictable and thus a technical indicator can provide a way to execute a trade with a rationale provided by signals. The problem is that signals can be wrong. The trader may find that they want to filter signals with other indicators (such as a moving average) but then can end up with an overly complex set of signals which try to account for varying market conditions. So wondering what are the best technical indicators is a valid and understandable question.

It can be helpful to start with a premise that indicators will not be reliable (as they won't be). However they are used extensively, partly for the very reason that many traders need to have a rationale for making a trade. One set of indicators which are used but the beginner trader may find complex are the Ichimoku Cloud, which provide a way to manage a trade from beginning to end.

Many traders will be using core indicators such as MACD and RSI (both of which can be used for trading on divergence). One reason for using these indicators is precisely because both human and robot traders are using them, thus the effect on the market may be magnified. However the trader can also find that these kinds of effects can also reverse and dissipate. For example the trade may find divergence works in certain kinds of volatile markets, but not in others. This can also be seen where popular moving averages are seemingly always respected but only for a short while (assuming that they are not pointing to an underlying market structure).

The market is probably too complex and too random to let any indicator be effective in a reliable way. But having a rationale for a trade is important and can help the trader avoid being buffeted by volatility. The trader may wish to consider other technical indicators. If they use MT4 or MT5, they can download a wide range of indicators or build them.

The trader may wish to use patterns in addition to indicators (i.e. to filter patterns). Patterns may also not work out as expected, but they do happen. The trader can ally pattern formation and indicators with liquidity, for example by trading in markets where liquidity is increasing or decreasing (such as in the run up to and after close of major market sessions). In general the trader may need to trade with their own judgement rather than simply relying on an indicator.

Search this site