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Day Trading Indicators: The Basics

Reaching a professional level of day trader isn’t an easy task. It requires discipline, excellent risk and money management skills, and a solid working knowledge of the market. A thorough understanding of the various technical indicators is also a necessity to reach the top. These trading indicators offer technical analysis of market conditions as well as insight into market psychology and the supply and demand of securities. They can even provide reliable predictions of what to do based on complex computation.

One of the most commonly seen indicators on a professional trader’s chart is moving average. There are two types of moving averages to utilize: the simple moving average (SMA) and exponential moving average (EMA). Choosing one over the other depends on the time frame being studied. Traders often use both to make comparisons which, in turn, helps determine if the stock is experiencing an uptrend or downtrend. Professionals tend to prefer the EMA indicator since using the SMA has a potential drawback. Put simply, the SMA indicator places equal weightage on all the price points, which may lead to redundancy.

The way it works is by keeping a running total of up volume and subtracting down volume. Volume changes based on whether the price went lower or higher. A rising OBV during price movements suggests strong market participation. When falling, it shows selling volume is outpacing buying, thus indicating lower prices. All this acts as a tool for trend confirmation.

These examples merely scratch the surface of the top indicators that traders should have in their toolkits. If you want to learn more, please see the accompanying resource From NinjaTrader for further information.

Top Trading Indicators Toolkit from NinjaTrader, a futures broker

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