Technical Indicator / Technical Analysis Tools for Intraday, Short Term & Long Term

Intraday trading is considered one of the most lucrative yet risky trading processes across the globe.

However, with the inclusion of technology in trading, and the invention of trading indicators, intraday traders have a sigh of relief, whether they are beginner or professional and experienced traders.

This article will guide you about intraday indicators in detail and you can learn about different types of intraday indicators that you can use.

You will also learn about how to choose the right indicator for your trade and a lot more insights about these indicators.

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What are intraday indicators?

Before you understand what intraday indicators are, you need to understand what is intraday trading and trading indicators in general.

So, intraday trading refers to the trading phenomena or process where the trader buys and sells securities on the same day or to be precise within the same trading session.

A trading session in India for the stock market starts from 9:30 am and last up to 3:30 pm, from Monday to Friday, except for public or national holidays.

So, if you are a trader and you purchased 100 stocks of say XYZ Company around 10 am on Monday and sold all 100 shares by 2:3 pm on the very same day, the trade will be considered as an intraday trade.

Now, trading indicators are mathematical calculations that are plotted on graphs to give you different insights about the security you are trading or the market as a whole.

These are trading tools or technical analysis tools to be more accurate which helps traders to take different trading decisions on the basis of different facts and figures and calculations.

So, intraday indicators are nothing but the trading indicators which are used for intraday trading. Since different types of indicators are used for different types of trading, the intraday traders need to understand the intraday indicators particularly.

How do intraday indicators work?

Intraday indicators like any other trading indicators work on the logic or concept of “history repeats itself”.

This means if there were the same patterns and price movements in the past, which are repeating now, the market will behave in the manner it behaved in the past.

The indicators identify these patterns and prices by making different mathematical calculations and when the patterns match, the indicators provide different signals which are plotted on the charts used for technical analysis.

For instance, if there is a political fallout in the country, which happened last twenty years back (hypothetical situation)

The prices are drastically falling, so the trading indicators will compare the market movements from the past data available from 20 years ago and accordingly it will help you decide by providing market signals.

So, with these indicators, you can stay alert if there is a change in the market happening and you need to take important decisions to save your money invested in the trades.

What are the things Intraday indicators identify?

Since there are different intraday indicators, it is important to understand which indicator is used for identifying what. In general, the indicators identify the following four things –

1. Momentum: This is the strength of the price trends or market movements which are identified by a set of intraday indicators like RSI and others which will be discussed later in the article.
2. Trend: Most of the indicators which you will be used for intraday trading will indicate the price trend which is the direction of the price or the market. In simple terms, it will identify whether the price of a particular security or the market as a whole is going up or down.
3. Volatility: While the price change is important to identify, so is the strength of the change but also how frequently it is changing is equally important, and that is what volatility indicators do. These indicators help you understand how fast and frequently the prices are changing or the market is moving.
4. Volume: Finally, these intraday indicators will help you understand the volume of trading as well which is important for intraday trading or investment strategies. In simple words, these indicators will identify how many times the stocks/ securities are bought and sold over a particular period.

Top Intraday Indicators

Now, that you know what are intraday indicators, and how they work, it’s time to find out which are the top intraday indicators that you can use for intraday trading.

Moving Average Indicator (MA)

This is the Moving Average Indicator, yes the one you learned in your school. Moving Average (MA) also known as the Simple Moving Average indicator is an indicator that helps in understanding the price trend by plotting the average prices of a stock/ security over a period of time.

Since the average price is used to draw the trend line, any sudden surge or fall in the market doesn’t affect it deeply. In intraday trading, SMA is mostly used as it offers the trader an understanding of how the market is moving for the day without much hassle.

If you are wondering how to understand the MA indicator, then here is the process.

Suppose, you are using a 10-day MA on an hourly chart, if the current price is below the moving average, then the trader should go for short-selling as the price can drop for the security, which is the current market price is above the moving average, then he can go ‘long’ that is buy the stock.

Relative Strength Index (RSI)

This stands for Relative Strength Index which is a momentum indicator. It is an oscillating indicator that helps in identifying the momentum of the market or particular security, and market conditions and also indicates price changes that are dangerous for intraday traders.

The RSI indicator uses a value that ranges from 0 to 100. If the RSI indicator shows a number above 70 for a particular asset, then you can consider the asset to be overbought, and eventually, the price will reverse for the asset.

On the contrary, if the number is around 30 or below, the asset can be considered to be oversold.

Bollinger Bands

Bollinger bands indicator is used for identifying the volatility in the market. There are three bands in this indicator that are used for the identification process. There are a middle band, a lower band, and an upper band.

The upper band is a +2 standard deviation while the -2 standard deviation is used for the lower band and the middle band is a 20-day simple moving average.

When the market is highly volatile the gap between the upper and lower band widens and the gap narrows down if the volatility is less, with the middle band in between.

The price moves in between these bands, when the price rises above the lower band and crosses the middle band right after, the profit target is the upper band.

Then if the price is hugging a band for a prolonged period indicates strong trends. If the price surpasses the upper band or lower band then, a continuation of the strong trend is established.

Scholastic Oscillator

This is another momentum indicator that compares the closing price of an asset to the range of the asset’s prices over a specified period.

The sensitivity of the oscillator is adjustable as per the time frame and for intraday trading, you need to use the shorter time frames.

The indicator provides an overbought or oversold indication about the asset/ security that you are tracking or trading by using a range of values from 0 to 100. If the readings are over 80, then the asset is overbought while a number below 20 will signal oversold levels.

However, it is always suggested that you use other indicators to check and be sure of these levels as at times, strong trends also can manipulate the overbought and oversold levels.

You can also use this indicator for understanding any reversal in the share market. For instance, in a bearish trend, the price drops to a fresh lower low, and the oscillator is pointing to a higher low, it may indicate that the bearish trend is about to end and the market will turn around.

Commodity Channel Index

It is another momentum indicator that is used for determining overbought and oversold levels in the market for any particular security/ asset.

It can be used for generating trade signals as to when the trader should or may enter the market or exit the market. It is also used for understanding the trend and its strength.

An uptrend is marked when the CCI is moving from negative or close to zero to more than 100 or close to it while a bearish trend is marked when the indicator tends towards -100 from a near Zero range.

Fibonacci Retracement

These are horizontal lines that help in understanding support and resistance level and are also used for determining the momentum.

Different Fibonacci ratios are used for determining these levels and momentum which are 23.6%, 38.2%, 50%, 61.8%, and 100%. Using these percentages, the levels of price of any asset are determined. Then the horizontal lines are drawn to identify the support and resistance level.

Moving Average Convergence Divergence (MACD)

This stands for Moving Average Convergence Divergence which uses two moving averages at the same time of an asset’s price for determining the trend and momentum.

You can derive MACD by deducting the exponential moving average of 26-period from 12 periods. The result is plotted and regarded as the signal line which is used to understand buy and sell signals.

If the MACD crosses and goes above the signal line, then buy the asset and sell if the MACD moves below the signal line.

On-balance Volume

This indicator is used for identifying the pressure of buying and selling any security. It indicates an up-volume when the closing price of the asset is higher than the previous day’s closing price and it considers a down-volume when the closing price of the security is lower than the closing price of the previous day.

An upper trend can be expected to continue if the price line of an asset and the OBV is touching new highs and higher troughs while a downtrend may continue if the price and PBV both are reaching lower lows and troughs. An upward break out can be determined if the OBV is rising as accumulation is taking place.

Similarly, if the OBV is declining, distribution may be under process and thus a downward breakout of price can be expected.

A negative divergence can be expected around the corner and the upward trend is likely to reverse when the price of an asset is making new higher highs but the OBV is not making higher highs.

On the contrary, if the price is making lower troughs but OBV is not, then the asset may see a downtrend to pause.

Super Trend

This trend indicator is one of the favorites of intraday traders. The indicator uses the Average True Range (ATR) to measure the value of the security and is used for measuring the degree of volatility in the price of the asset.

The signals for buy and sell are provided by the indicator when the indicator plots over and above the closing price or below the closing price.

If the indicator plots the ‘Supertrend’ above the closing price, then it is considered a buy signal and if below the closing price then a sell signal. There are other aspects of this indicator as well which help the trader to identify trend reversal and others.

Average Directional Index (ADX)

This indicator indicates and helps in understanding how strong a trend is. After all, if you trade in the direction of the trend and especially a strong trend, the risk reduces, and the potential to profit rises. ADX indicator uses the moving averages again like other momentum indicators however it has a set time frame of 14 bars but you can alter it if you require.

It is plotted as a line that has values from 0 to 100 with two DMI lines which stands for Directional movement indicator (DMI).

This indicator doesn’t give you the direction of the trend but the strength of it, and it is where the DMI helps in. There is a +DMI and –DMI and when the former is above the latter, the prices are moving up and there is an uptrend, and the ADX measures the strength of the uptrend.

Reversely, when the +DMI is below the –DMI, there is a downtrend, prices are moving down and ADX measures the strength of the downtrend.

ADX line goes up during an uptrend and falls during a downtrend, now the more it rises, the uptrend is stronger, and the more it falls, the downtrend ‘s strength is.

Advance Decline Line

This indicator is used for identifying the market sentiment that is whether more stocks are falling or rising. In simple words, it helps in identifying the overall market If you day trade using indices, then this indicator comes in handy, as it can also identify any divergence in the market when it occurs.

If the A/D line is going moving downward, then there is a bearish divergence and it indicates more stocks are falling. While if the slope of the A/D line is up, most stocks in the market are having an uptrend and then you can call the market a healthy one.

When the stock indices are moving downward but the A/D line is moving upward, there is a bullish divergence which indicates the market will turn around in a while.

Aroon Oscillator

This indicator also helps in identifying the strength of the trend and whether the market will reverse or continue the trend.

Readings are starting from 0 where if the reading is around 0 and exceeding it, then there is an uptrend while any reading below 0 is considered a downtrend.

The intraday traders should look for the crossover of the zero line which will signal the reversal of trends. If the readings are above 50 or below -50 then there are strong price moves indications.

Camarilla Indicator

Camarilla indicator helps in identifying the support and resistance levels. There are 4 support and 4 resistance levels that this indication provides to the traders.

This indicator is an extension of the classical or floor trader pivot point indicator. If the price surpasses the 4^th support level or the 4^th resistance level, there will be a market breakout as per this indicator.

Exponential Moving Averages indicator (EMA)

This technical indicator is another form of moving average indicator and stands for Exponential Moving Averages indicator. The indicator like other moving average indicators tracks the price of any security over a particular time frame.

However, the difference between SMA and EMA is that EMA uses a weighted average which gives more weightage to the recent prices than the earlier ones, unlike SMA which calculates moving averages without any weights.

This is done since the recent prices are more relevant and thus must have more weight to find out the better market trend.

This indicator is used by the intraday traders for understanding whether there is an upcoming reversal or not, whether the market will continue the present trend or not, overbought and oversold levels and even areas of support and resistance and even this indicator helps in understanding the momentum of the trend.

Pivot Point Indicator

Pivot Point indicator is used for determining the overall market trend for different time frames. The pivot points are calculated using the high and low and the closing price from the previous day.

If the price of the security trades above the pivot point on the very next trading day, then the overall market trend can be said to be bullish while the price of the security is below the pivot point on the next day can indicate a bearish market overall.

This indicator also helps in identifying support and resistance levels which again help intraday trends to find the right entry and exit from the market.

How to use the intraday trading indicator?

If you are wondering that now you know about so many intraday indicators but don’t know how to use them, here is a brief guide for you.

• Firstly, you need to have a powerful trading platform that offers all these trading indicators.
• Then you need to pick the right indicator
• Once you know which indicator to use, then open the technical analysis charts, and use the indicator to find out the momentum, trend, volume, or volatility of the security you are tracking/ trading or the overall market.
• You should also read and learn about different indicators to use them wisely.

Benefits of intraday indicators

The benefits of the intraday indicators are –

• It saves your time in predicting market movements. Without these indicators, if you try to manually find out the market trend, momentum, volume, and volatility, you cannot trade as a day trader since day trading is all about time. Within the six hours of the market session, you have to open positions, close them and try to earn a profit. So, these intraday indicators help in identifying different market factors in no time.
• They come for no cost when you are using a trading platform that offers all these indicators.
• You can learn about these indicators easily as well by reading about them and also using them in real.
• These indicators can be integrated with charts and graphs to provide buy and sell signals.

How to pick the right indicator?

The process of picking the right intraday indicator should depend on what you are looking for. If you are looking for identifying the trend in the market, then you can use indicators like MA, EMA, and MACD.

If you are trying to identify the momentum, you can use the RSI, Scholastic indicator, EMA, Commodity Channel Index, and ADX. So, the most important thing to keep in mind for picking the right indicator is what you are trying to identify.

Conclusion

Intraday indicators act like blessings for intraday traders. These indicators help them identify trends, momentum, volume, and volatility in the market.

With these indicators, the day traders become more confident about their bets in the market, and most importantly they can find out the right time to enter and exit the market.