Simplify Your Day Trading With Three Free Indicators

Price explosions are constantly taking place in the markets, creating unique day trading opportunities while at the same time melting down trading accounts. 

On most days, traders are left second-guessing their strategies, let alone the indicators they use to predict price action.

While day trading, the idea is to have a competitive edge in determining the direction price is likely to move before it happens, opening and then closing a position before the end of the day. 

The best trading indicators allow day traders to gain insight into entry and exit levels while trading various instruments.

While technical analysis entails using one or two indicators and studying chart patterns, one is always sure to be spoilt for choice. There are dozens of indicators to choose from for technical analysis. Conversely, it is common to find novice and professional traders asking:

  • What are the best indicators for day trading?

  • Which indicators should I have in my chart at all times?

  • What indicators will help me spot volatility before it happens?

  • What are the best day trading indicators for spotting day trading trends?

Fortunately, you don't have to worry anymore as we have you covered. 

Below are the top day trading indicators for anyone looking to have an edge in day trading

1: Spot Price Momentum In Seconds With RSI

Arguably one of the best trading indicators for analyzing market momentum. The indicator provides valuable insight into the direction price is moving. 

It also provides hints on potential price reversals. It is also an ideal tool for understanding whether price levels are overheated (overbought) or too cold (oversold).

The RSI is one of the best indicators for day trading as it measures the speed and change of price movements. It comes with readings of between 0 and 100. 

Chart showing RSI indicator ranges for buyers and sellers

Know in a matter of seconds whether buyers or sellers are taking control in a market!

Whenever the indicator reading is above 50, it signals bullish momentum. This means that the underlying instrument has turned bullish on more buyers entering the market.

Likewise, when the RSI reading is below 50, it signals bearish momentum. It implies more short sellers are in the market; consequently, the underlying asset's price is likely to tank as the momentum is to the downside.

As a day trader, the idea is to understand the prevailing market condition and momentum. 

This way, it becomes much easier to ascertain the direction price is likely to move. All trades in day trading should be opened toward the direction of prevailing market momentum to increase the prospects of generating profits. Therefore, the RSI will always provide accurate information on the direction price will likely move on any trading day.

In addition to studying market momentum, it is important to know whether prices are overheated or are too cold. The RSI also comes in handy on this front. Whenever the RSI reading is above 80, it implies overheated conditions. This simply means that the instruments under study have been overbought.

The likelihood of price correcting and tanking is usually high during overbought conditions. During such situations, the smart money is unlikely to enter the market and help fuel further movements to the upside as the asset is considered overbought. Consequently, most of them stay on the fence, awaiting a deep pullback to enter a long position.

During overbought conditions, it is important to be extremely cautious. While the prospect of price reversing is usually high, there is also the risk of the price remaining in the overbought condition for quite some time. The reversal does not happen immediately. A reversal would be in the works as soon as a bearish engulfing candlestick forms signaling a build-up in short selling pressure.

Additionally, whenever the RSI reading is below 20, it implies the underlying asset has been oversold. The prospect of the price bouncing back and correcting higher is usually high in this case. However, the price can also remain in oversold condition for some time.

Therefore, it is not wise to simply enter a sell position as soon as the RSI tanks below 20. The idea, in this case, is to wait for a confirmation that the price is likely to reverse. The proof can come in the form of a bullish engulfing candlestick signaling build-up in buying pressure.

As one of the best trading indicators for day trading, RSI also shows periods of divergence in the market. Such scenarios occur whenever the indicator and the price move in the opposite direction. For instance, the RSI might be trending up, making higher highs, but the price continues to move lower.

It is important to be wary of a potential price reversal whenever this happens. The divergence, in this case, signals possible price reversals as the RSI is signaling a build-up in buying pressure. Therefore it would be wise to close any sell positions and look to enter a long position.

Likewise, whenever the RSI reverses course and starts trending lower, making lower lows, while the price continues to move up, the prospect of a reversal occurring is high. The divergence in play signals a potential price reversal to the downside as the RSI warns of a build-up in selling pressure. Therefore, a day trader should look to close any long positions and sell.

2: Trade With Big Money Using MFI

The Money Flow Index is a unique technical analysis indicator that measures the amount of money that flows into security over a specific period. 

Positive money flows into a security resulting in price increases, affirming buying pressure. Whenever the price declines, it could be a sign of money flow declines, signaling a buildup in selling pressure.

It stands out as one of the best day trading indicators as an upgrade of the Relative Strength Index. Unlike the RSI, which relies on price to identify overbought and oversold conditions, the MFI indicator leverages both price and 

Chart showing MFI standard settings

MFI is as simple as it is powerful; follow these basic settings on any chart - in any market.

volume, thus accurately representing the prevailing market condition. It is also an important tool for spotting divergences that warn of potential price reversals.

Just like the RSI, the MFI oscillates between 0 and 100. Being a volume-weighted indicator, whenever the readings are above 50, it implies prices are likely to continue moving up on strong volume in the market. Consequently, traders use this opportunity to eye long positions instead of short positions.

Similarly, whenever the MFI indicator readings are below 50, it implies strong bearish momentum signaling price is likely to tank on huge shorts selling volume in the market. Consequently, day traders use this opportunity to eye selling opportunities.

Given that the indicator incorporates money volume into security, it can be used to identify extremes and potential price reversals.

The oversold conditions come into play whenever the MFI indicator reading is below 20. This is usually characterized by prices dropping significantly. A reading of below 10 affirms oversold conditions. 

Chart showing price action in overbought and oversold conditions

Just like RSI, you can tell when institutional traders believe price is either overbought or oversold.

While the prospect of security remaining oversold is usually high, bounce-backs are a common occurrence. This is partly because smart money uses this opportunity to buy security at a discount. In addition, very few people would be willing to continue selling at extremely low price levels.

Conversely, whenever the MFI reading is below 10, most technical analysts use this opportunity to eye long positions in anticipation of price reversing and edging higher.

Similarly, whenever the MFI reading is above 80 and increases to 90, it signals overbought conditions. In this case, it is believed the asset price has risen significantly, owing to strong buying pressure and investors pumping more money into the security. While the asset price can continue rising even with the MFI in overbought territory, the prospect of a reversal occurring is usually high.

Therefore, most day traders eye short positions whenever the MFI index reading is above 90, as the prospect of traders exiting positions and taking profits is usually high. Therefore, the price will often correct and start moving lower, having hit a key resistance level on the upside.

Divergence occurs whenever the MFI indicator and price move in the opposite direction.

Bearish divergence occurs when an asset price continues making lower lows even as the MFI indicator bottoms out and starts making higher lows. This implies that selling pressure is waning, and buyers are increasingly flocking the market. Consequently, a day trader would use this opportunity to eye long positions as the prospect of price bouncing back and edging higher is usually high.

Occurs whenever price makes higher highs even as the MFI indicator retreats from highs and starts making lower highs. If this were to happen, it would imply a decrease in buying pressure needed to sustain further price gains. As sellers flock to the market, the prospect of price reversing and edging lower is usually high. Therefore a day trader would use this opportunity to eye sell positions.

3: Trade Intraday Trends Using MACD

Moving Average Convergence Divergence stands out as one of the best indicators for day trading as it helps traders understand the direction price is moving. It indicates whether the price is in an uptrend or a downtrend.

The indicator comes with two lines and a histogram. The first line represents the MACD Line which is the difference between two moving averages. It is also considered the faster-moving average as it changes quicker in response to price changes. On the other hand, the Signal Line is a slow-moving average that changes slowly in response to price changes.

The histogram plots the difference between the MACD Line and the Signal Line and represents the same in a histogram. Whenever the MACD Line and Signal Line move apart, the histogram becomes bigger, affirming growing momentum in a given direction, affirming divergence.

Whenever the MACD and Signal Line move closer, the histogram becomes smaller, affirming convergence. This is an indication that momentum is waning and that price reversal is about to happen.

Chart showing MACD indicator

Set confusing moving averages aside and have the work done for you! Simply look for crossovers with MACD.

Because there are two moving averages with different speeds, the quicker one will always react faster to price movement. Consequently, whenever the MACD Line crosses the Signal Line and starts moving up, it implies a new uptrend has formed.

The histogram will become bigger whenever the MACD Line diverges from the Signal Line, signaling a strong upward momentum. In this case, a day trader can look to enter long positions to try and profit from the emerging uptrend.

Similarly, whenever the MACD Line crosses the Signal Line and starts moving lower, it implies the start of a downtrend. The prospects of price edging lower is usually high as the MACD Line moves away from the Signal Line, making lower lows. The strength of the downtrend is further affirmed by the histogram widening on the lower end of the zero line.

Divergence is also a common occurrence while using the MACD indicator. Divergence occurs whenever the price makes a new swing high, but the histogram does not. It implies that the upward momentum is fading, and buyers are falling off.

Chart showing bullish MACD divergence

Looking to confirm a potential run of the bulls? Look out for divergence with MACD

Consequently, the prospect of price reversing and moving lower is usually high. Day traders use this opportunity to eye-sell positions as the prospect of price reversing and moving lower is usually high.

A bullish divergence occurs whenever the price makes a new swing low, but the histogram does not.

What this means is that the bearish momentum is fading and that buyers are slowly flocking the market. In most cases price will reverse and start moving up. Day traders use this opportunity to eye buy positions in anticipation of a massive bounce-back taking place.

Putting It All Together For Futures Trading Profits

The Relative Strength Index, the Money Flow Index, and the MACD indicator are some of the best day trading indicators. They provide valuable insight into market momentum and underlying trends. While day trading, it is important to use two of the three indicators at any given time.

For instance, one can use the Money Flow Index to get insights into whether investors are investing a good chunk of their money into an asset or withdrawing. When the reading is above 50, it implies a bullish setup, signaling more buyers in the market. The bullish thesis would be affirmed by the MACD Line crossing the Signal Line moving up and the Histogram widening above the zero line, signaling the start of an uptrend.

Similarly, one can use the RSI and the MACD indicator to affirm whether the market has turned bearish. Whenever the MACD Line crosses the Signal Line and moves lower, it signals the start of a downtrend. The downtrend would be affirmed by the RSI indicator moving below the 50 level.

Simplify your day trading with any or all of these easy-to-use indicators today.

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