One of the most common questions I receive about trading is regarding what Indicators to use for Day Trading. Many people first want to know what they are and how to use them, and here I am to help you to understand this topic better. 

Remember that if you want to become a better trader; and make better investments, you should consider learning about indicators. These tools will help you to have a wider and more detailed vision of the financial markets. 

Now, let me get right into it, and of course, let’s start with the basics, and then I will give you the details regarding which are some of the best indicators for day trading; and how you should use them in your trading activity. 

What is Technical Analysis? 

There is a big debate about which type of analysis is the best for trading. On one hand, we have the Fundamental Analysis, which is a method that consists of the understanding and evaluation of an asset by its intrinsic value. Involves variables such as external events, politics, economics, industry trends, and of course, an inquiry of the financial statements. 

On the other hand, we have the Technical Analysis. This method consists of the observation, evaluation, and understanding of the price trends and patterns in order to identify selling and buying opportunities. The main tools for this kind of analysis are charts, graphs, and indicators. 

So, which one should you use? It depends on the security you are trading with, and the type of investor you are. In MDC Trading Academy we have a very particular methodology that involves the use of technical analysis and some day trading indicators

But don’t misunderstand me. As I told you, which one you should use will depend on several factors. By this, I mean that there is not exactly a better option, you should have a detailed trading plan with your investor profile and an analysis of the market you are going to operate in. 

Now that you have understood this, let’s dive into the indicators subject. I will teach you about some of my personal favorites and some of the ones we use in MDC Trading Academy

What is an Indicator? 

You will hear this term every day in the trading world. Many investors have their favorites, and some among them even created their own. For example, Warren Buffett —one of the most successful investors— has the Buffet Indicator: this is a ratio calculated by the total US Stock Market Valuation to GDP. People who use Fundamental Analysis use economic data, annual reports, or financial ratios. But now I am proceeding to tell you about Technical Indicators; the ones we use in Technical Analysis.

And what exactly is a Technical Indicator? Let me explain it to you. A technical indicator is a mathematical calculation based on volume, price, or the security’s position. They show the patterns and trading signals in the behavior of the stock. 

It is overly important to understand that the indicators are only a probability for something to happen. They are not predicting the future: they can not. The principal use is for understanding historical data and to try to predict how the price could behave to find an opportunity to sell or buy a stock.

Have that in mind: these are just tools of confirmation. An indicator should not tell you if you should buy or sell, it is only a confirmation of trends that the price followed in the past. It gives you a more broad vision of the movements of a stock and will help you make a more informed decision, but it should not be your principal source for decisions.

How to Trade with Indicators? 

As I explained before, technical indicators will help you to find trends in the price that may happen again. This means that with a correct analysis you will have the chance to have an objective opinion to determine your entry, exit, or trade.

By understanding trends you will identify areas of direction for stock, and find a trading opportunity. It depends on your strategy to define periods for the charts you are going to use and the best indicator for you. 

For example, you can include an indicator on a chart so it can help you establish triggers or filters for a trade. The filter will help you to identify the setup conditions; while a trade trigger will help you to identify when a particular action should be taken. 

Types of Technical Indicators

There are some categories to classify technical indicators, it depends on which variable you will need to analyze. 

  1. Stochastic Oscillator: This indicator moves between two values; it is from there that takes its name. It will help you to predict a trend before it happens, and construct high and low bands between the two values. It is very useful for discovering short-term overbought or oversold conditions. Because an oscillator works with two extremes values, you can interpret if an asset is overbought (if approaches the upper extreme value) or oversold (if approaches the lower extreme).  
  2. Trend indicators: This indicator tells you in which direction the market moved, is moving, and/or may probably move.  
  3. Volume indicators: used to determine the demand and supply of a financial asset. 
  4. Volatility indicators: used to measure how far security stretches from its mean price in a certain period of time. 
  5. Fibonacci indicator: used to indicate where support and resistance are probably to occur in security. 

How Many Indicators are there in the Stock Market? 

This is a very hard question. I can not tell you exactly how many technical indicators are out there, and as I told you, some investors even develop their own, so, to give a precise answer is not possible. 

I will mention some of them, and then, specifically talk to you about the ones we use in MDC Trading Academy for Day trading. 

  • ABANDS: Acceleration Bands
  • AD: Accumulation / Distribution
  • BBANDS: Bollinger band
  • BVOL: Bid Volume
  • KC: Keltner Channel. 
  • PC: Price Channel
  • MACD: Moving Average Convergence Divergence
  • RSI: Relative Strength Indicator
  • SAR: Parabolic Sar
  • WMA: Weighted Moving Average
  • TSF: Time Series Forecast

Do Indicators Work with Day Trading?

Day Trading is a practice that refers to selling and purchasing a security within a single trading day. Since you will make your operations in a single day, you should be well trained and informed about the market. The main objective of this form of trading is to make profit in short-term periods by capitalizing on the small price movements. 

This is why a fundamental analysis won’t help you in day trading. Since the operations are made within a day, that kind of information won’t be as helpful as charts and technical indicators. By using those tools, you will be able to identify those variations in short periods of time and make the right decisions to profit from those movements. 

The next thing you need to know is which indicators can be helpful to you. Keep reading and find out one of the best indicators for day trading.

What are some of the Best Indicators to use for Day Trading? 

The following indicators are just some of the best ones you can include in your day trading strategy: 

  • Keltner Channel Indicator: this indicator creates a set of bands above and below a security’s price. These bands are formed based on volatility and help you determine a trend direction.
  • Regression line: This indicator is used to obtain the general direction of price over a past specific period of time.
  • MACD (Moving Average Convergence Divergence) Indicator: This indicator is used to measure the strength of the movement of the price of a security. 

Financial Trading Tools

I have two favorite tools to make my analysis. These trading platforms will help you to see the trading charts, to understand how price is moving, and to add as many indicators as you need. 

  1. TradingView: this is a social network for traders and investors. It allows you to follow many different securities: futures, stocks, and even crypto. Also, it is a great place to consult charts, and keep in touch in real-time with what is happening in the financial markets. 
  2. Ninja trader: this platform lets you analyze the financial markets and find opportunities for negotiation. It has a simulator where you can test your strategy, and also it has the possibility to do back-testing. You can even automatize your operations or make them manually. A great place to trade with futures! 

Do Professional Day Traders Use Indicators?

The answer is a resounding yes! And of course, it depends on the type of trader, but in general, the most professional traders find some helpful information in the indicators. Each one of them has their favorites, some may use more, and some less. Our recommendation in MDC Academy is to add some indicators to your trading strategy to have the most advantage you can get. 

As you just learned, there are many helpful indicators that can help you to improve your trading career. You should always keep learning in order to be a professional trader; whereas the more knowledge you have, the better you will become at trading.

But, maybe there are some other doubts you have about indicators: how many should you use? How to implement them in your strategy? The answers certainly will help you to maximize your profit and reduce your risk! That being said, let me invite you to our Senior Trader Program, where you will have access to customer support, live trading, a global community, an interactive platform, and MORE! This is the last course you’ll ever need about trading!

Just click here Senior Trader Program, and access all the necessary resources to be a professional trader!

Sebastian Zuluaga Senior Trader de MDC

Sebas Zuluaga

+ posts

Senior Trader with more than 5 years of experience in the Futures Markets. With a degree in Business Administration from the University of Antioquia. A former profesional soccer player for the Colombian national team, Sebas began his trading career in college and it has become his exclusive source of income. Sebas has become and expert motivator and speaker and has personally worked with more than 500 traders to achieve their goals.