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Intrading trading is a high-risk, high-reward activity that demands patience, consistency, and an in-depth understanding of the market dynamics. While skills like patience and consistency can be developed by practice, you might need to use some tools to understand underlying market dynamics. One such easily available tool is technical indicators.
But there's a catch - there are countless technical indicators available in the market. Some predict price movements, and some measure volume and volatility. It can be difficult to choose the best ones but don't worry. In this blog, we will guide you to the best indicators for intraday trading.
Intrading trading is the short-term buying and selling of stocks and other financial instruments for profits. As the name suggests, an intraday trader buys and sells the security on the same day before the market closes.
As the prices keep fluctuating throughout the day, an intraday trader tries to capture a small margin from such movements to make profits. However, it is important to note that engaging in ultra-short-term securities trading involves high risks.
Thus, tools like technical indicators come in handy for intraday traders.
Different types of indicators help you understand market dynamics such as trend, volume, momentum, and volatility. Based on that, you can decide your entry point, stop loss level, and the target price for each trade.
Let’s check out the benefits of using indicators.
RSI is a momentum indicator that helps you decide whether the stock is undervalued or overvalued based on recent price changes. The value of RSI oscillated between 0 to 100. Generally, if the RSI of a particular stock is 70 or above, it is considered overbought and if it is 30 or below, it is considered oversold.
The moving average is used to identify trends in the stocks. It is plotted as a line on a chart, which is calculated by taking the average price over a specific number of days such as 20 days, 50 days, or 200 days. However, if the price is trading above the moving average, it is in an uptrend and if it is below, the stock is in a downtrend. Moving averages also work as support and resistance for the particular stock.
This indicator provides insight into volatility and helps you identify if the stock is overbought or oversold. Bollinger bands indicator contains three lines - upper, lower, and middle band (which is a 20-day moving average). If the price is touching the upper band, it is overbought and if it is touching the lower band, it is oversold.
As the name suggests, this indicator helps you assess the trend of a particular stock. It consists of a line on the price chart which acts as a support and resistance level. If the price starts trading above the supertrend line, then it is considered to be trending up and if prices start falling below the supertrend line, then the stock is considered as trending down.
Similar to the moving average, VWAP is also plotted as a single line on the price chart, indicating the trend of the stock. However, it is calculated by considering both price and volume. If the stock price is trading above VWAP, then it is considered overvalued whereas if it is trading below VWAP, it is considered undervalued.
Although the above-mentioned indicators are shortlisted as the best indicators for intraday trading, they do not promise profits. The risks involved in trading any kind of financial securities are inevitable. Therefore, you must effectively use these trading tools while maintaining strict stop loss in all your trades. When used with caution, they may prove beneficial in your trading journey.
Sources:
https://www.investopedia.com/top-7-technical-analysis-tools-4773275
https://www.thehindu.com/brandhub/pr-release/best-indicator-for-intraday-trading/article67075063.ece
https://blog.elearnmarkets.com/6-most-used-intraday-trading-indicators/
https://in.investing.com/analysis/5-most-used-intraday-trading-indicators-200510859
Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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