How to Use Intraday Trading Indicators

Intraday trading indicators are graphing tools applied by traders to forecast the future movement of a price that has already been realized and recorded in the historical book. These are applied to understand trends and pinpoint entrance/exit points into the market to ensure effective risk management. Intraday trading indicators are graphical representations that make use of technical information relating to price, volume, or open interest to provide signals.

There exist a wide variety of trading indicators, but the most commonly used in intraday trading are the following:

1. Moving averages. :- One of the simplest and widely used indicators in intraday trading is a moving average. The MA smoothest out the data representing prices to indicate the trend's direction. The two varieties of the commonly adopted moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
 SMA processes all price points the same; EMA provides an added importance to the most recent prices.
 A short interval of 5 or 10 is also used in intraday trading. When the price crosses above the moving average, it is a buy; when it goes below, then it's a sell signal.

2. Relative Strength Index (RSI). :- It is termed the RSI, or relative strength index. This is a kind of momentum oscillator that computes the speed of price movement and change. As an oscillator, it is most often set between 0 and 100, though. - It is overbought if it crosses above 70, and when it goes below 30, it becomes considered as oversold. When the RSI breaks above 70, it might be as if the asset is becoming overbought. The asset would be poised to reverse or pull back soon. - If the value of the RSI is less than 30, then there is a possibility that the traded asset has almost reached the point where it will be oversold, and its price has approached its floor level for a change in direction. Intraday traders count on RSI to locate potential over-sold or over-bought conditions as well as possible reversal points.

3. Bollinger Bands. :- Bollinger Bands are made up of three lines: the middle band is a moving average, while the upper and lower bands are calculated based on the standard deviation of price. The more volatile a market is, the higher it makes these bands, and the more stable the market, the tighter it compiles them. In other words, once the price hits the upper band, it's said to be overbought. This means that when the price touches the lower band, it might prove as an indicator of being oversold. Bollinger Bands help the intraday traders calculate volatility and potential breakout points.

4. MACD (Moving Average Convergence-Divergence). :- It is literally a momentum indicator and a trend follower that computes the differential between two moving averages of the price of any asset. It comprises the MACD line, which is the short-period moving average minus the long-period moving average of an asset's price and a signal line, which so happens to be the 9-day EMA of the MACD line. A buy signal occurs when the MACD line crosses above the signal line. In the case where the MACD line goes down below the signal line, it signals the sell opportunity. The MACD confirmation of trends and its display in regard to the points of turning momentum.

5. Volume. :-Volume is one such indicator, reporting the number of shares or contracts traded in a specified time. Large trading volumes indicate high interest in the asset whereas small volumes prove low interest. - Volume can even be used to confirm the trends. For example, in case the price is rising and simultaneously volume goes up, it becomes an indication that the trend is strong. - Low volume during a price rise may give cues that the trend is weak and likely to reverse.

1. Use Combinations of Indicators. :- The use of one single indicator may not capture the market specifically. Very often, one has to use a mix of a couple of indicators in order to be confirmed by signals. For example, if the stock reaches the overbought level of the RSI and is touching the upper Bollinger Band, it might be caused because both of them are confirming each other the potential reversal.

2. Adapt to Market Conditions. :- Different types of market conditions require different types of strategy. In a trending market, trend-following indicators such as moving average or MACD work quite well. For the ranging market, oscillators like the RSI and Bollinger Bands might be more suitable to pick price reversals.

3. Maintain the Framework for Timeframes. :- As intraday trading involves short-term price movement, most traders use indicators in shorter time frames like 5-minute, 15-minute, or hourly time. However, long time frame monitoring cannot be ignored to understand the overall trend direction.

4. Risk Management. :- Indicators are tools, not guarantees. Always use stop-loss orders and manage your position sizes so you don't get bumped out of their trades by sudden and illogical market movements. Having a solid risk management plan is key to successful intraday trading.