The three most important indicators for day-trading
Traders view charts as a way of identifying trading opportunities. The charts will help the trader to recognize what type of market the instrument currently experiencing. Investors will find either a strong support and resistance, where the stock is struggling to breach the ceiling and floor. The alternative is a market where the price is steadily moving higher or lower, continually making new highs and no new lows or vice versa.
1. Moving Averages
Moving average is a widely used tool to help filter out random price fluctuations to make it easier to identify the overall momentum of a trend. Moving average makes it easier for traders to evaluate the direction of their trade. This indicator simply plots a line that measures the average price over a predefined period of time. A trend will emerge and the trader can decide to place a buy or sell position based on the direction that has been identified by the MA.
For short-term traders, the Moving Average Convergence Divergence (MACD) is the most popular choice. This indicator quickly identifies short-term momentum.
2. Relative Strength Index
The RSI or the Relative Strength Index is a tool used to plot the strength or weakness of a financial instrument. The calculation is based on the closing prices of a given time period. Classified as a momentum oscillator, the index measures the size and force of the directional movement. RSI will help the trader to determine if the instrument is overbought or oversold which helps to predict a change in direction.
3. On-Balance Volume
The on-balance volume or the (OBV) reflects movements in volume, by taking the total volume for a trading period and assigning it a positive or negative value. When the price is up, the instrument is afforded a positive value, when the price is down, the instrument receives a negative value.