Day trading indicators include price oscillators, price patterns, support and resistance levels, moving averages, trend lines and channels, Elliot wave count, and Japanese candlesticks. These indicators help traders determine trends, buy and sell points, and market movement predictions.
There are a plethora of day trading indicators. They all work together to produce the best possible results for the trader. Common indicators include price oscillators, price patterns, support and resistance levels, and other analytical strategies.
Price oscillators are arithmetic price manipulations that are meant to help the trader determine if the trend is strong, weak, or about to change. They are called oscillators because their output oscillates between high and low. Often these flags are “normalized,” meaning they are rewritten to have values between 0 and 100.
Head and shoulders, triangles, flags, pennants, and wedges are trading indicators of the price pattern day. According to the theory, price patterns show how traders as a group perceive the market. Many of them have estimates of the minimum price that will be reached.
Support and resistance levels are used to decide where to buy or sell. Support is a point or area where prices stop falling, which occurs when enough buyers enter the market to prevent sellers from pushing prices down. Prices falling through support would be seen as a sell signal, and a bounce off support would signal a buy. Resistance is the mirror image of support and occurs when the price rise is met with enough selling to end the move higher. If the prices easily move through the resistance, that would be a buy signal.
Moving averages and moving linear regression lines are common day trading indicators. If prices above the moving average or moving linear regression line imply that the market is rising, and prices below imply that it is falling. The moving averages provide the baseline for a volatility assessment known as Bollinger Bands, the price point that is two standard deviations above and below the moving average. Some traders use Bollinger Bands as an indicator that the market has gone too far and may be ready for a reversal, while others use them to indicate strength in the direction of travel.
Trend lines and channels are common day trading indicators. A trend line is the line drawn between two lows and extended upwards in a rising market. An ascending channel is created by copying the trend line to the nearest high. In a falling market, the line is drawn between two highs and extends downward. A descending channel uses the descending trend line in a falling market.
More often than not, prices on the upside of a rising channel show strength. Prices crashing down from a falling channel imply that the end of the trend is probably very close. When prices fall below the ascending channel line, it is time to exit your long positions, while prices rising above a descending channel are a signal to exit short positions.
The Elliot wave count is a lesser known day trading indicator. The basic idea is that markets rise in series of three waves, but fall in series of two. A secondary idea is that the market will provide minor waves within the major waves, and those minor waves also proceed in a three-wave up, two-wave down pattern.
Japanese candlesticks are a day trading indicator that can be used in conjunction with all of the above techniques. Japanese candlesticks are a method of drawing each price bar so that what happened within that bar is easy to see. There is also a body of theory about how groups of candlesticks tend to predict short-term market movement.
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