Indicators tell you where the price of a particular stock or index is likely to go next. They provide additional information about the price and are in the form of additions or overlays on the price chart.
You should use a minimum of 2 or 3 indicators in combination with a candlestick for day trading. That is because different technical indicators have different tales to tell. No technical indicator is 100% accurate.
As a trader, your goal should be to try and identify trends, breakouts, or mean reversion (the tendency of a stock to revert to the average price) to make a profitable trade.
The article gives you an overview of the best indicators that you can use to identify such trading opportunities.
You can find the indicators in the ‘Indicators’ tab of the price chart provided in your trading account.
Note –The time frame on the price chart that will be used for intraday trading is generally 5min or 15min. But you can use other time durations as well (3min, 10min, 30 min) depending on your trading strategy without worrying much about the duration of your trade.
If an indicator is showing the same signals on different time charts, then there are higher chances that the trade will be profitable.
Best Indicators for Intraday Trading in India 2023
#1. Bollinger Bands
Bollinger bands highlight an area around the moving average price of a stock. The area is the range within which the prices are expected to trade based on recent and historical volatility.
The Bollinger Bands consists of 3 bands – upper, middle and lower, which form the area within which the price is expected to move.
The area between the upper band and the middle band is considered to be the buy zone – when price crosses the middle band from below, it is a buy signal.
The area between the lower band and the middle band is considered to be the sell zone – when price crosses the middle band from above, it is a sell signal.
Broader bands indicate periods of high volatility and narrower bands indicate periods of low volatility.
The edges of the upper and lower band are the points from which price is expected to revert in the opposite direction again, but sometimes the price may break out or down from the edges as well.
The bands sometimes do act as dynamic support and resistance levels.
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Best Moving Average Crossover for Intraday Trading
#2. Exponential Moving Average EMA Crossover
The Exponential Moving Average Cross is a moving average indicator consisting of a shorter-period and a longer-period moving average line.
Typically, 9-period and 26-period EMAs are used in the EMA cross for intraday trading. The two EMAs are averages of prices, with more weightage given to the recent prices. EMA is considered more reliable than simple moving averages because of the above reason.
When the shorter-period EMA crosses the longer-period EMA, it is a buy signal. Similarly, when the longer-period EMA crosses the shorter-period EMA, it is a sell signal.
In the above image, the red line is the 9-period EMA and the green line is the 26-period EMA.
If the price is touching the EMA line which is closest and bouncing back, it is a more reliable sign that a position taken as per the indicator will be profitable.
Most Accurate Intraday Trading Indicators in India
#3. Volume Bars
The Volume indicator plots volume bars at the bottom of the price chart. Volume is the number of shares that were exchanged in the defined time period.
For example, on a 15min chart, every candle represents price movement in a 15-min time period. Every corresponding volume bar is the number (volume) of shares exchanged in each 15-min period.
You should use volume as a default indicator on your chart as it visually shows details about volume spikes or volume declines.
If the height of a volume bar is relatively higher than normal, it indicates that there is a sudden interest in the stock which may have caused an up move or down move in the prices.
If the prices go up or down with high volumes, then there is a possible strong trending move. Low volumes with unusual spikes in prices signify weak and unsustainable trends.
A single high volume bar amongst low volume bars may not be very relevant for any useful interpretation while identifying trading opportunities.
But a cluster of high volume bars would mean a very strong interest in the stock and a possibly emerging strong trend.
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Best Momentum Indicator for Intraday Trading
#4. Relative Strength Index (RSI)
The Relative Strength Index (RSI) is a momentum indicator that measures the strength of recent and historical price changes.
The RSI helps to identify overbought or oversold conditions in the market. An RSI value above 70 indicates an overbought market and signals that the price may start falling soon.
Similarly, the RSI value below 30 indicates an oversold market and signals that the price may start rising soon.
If RSI and prices are moving in opposite directions, it indicates a divergence and signals that the price will revert to moving in the direction of the RSI anytime soon.
When you are trading intraday, a potential entry point for a long trade (buy) could be when RSI is in an oversold zone and forming a bullish price bar.
A potential entry point for a short trade could be when RSI is in an overbought zone and forming a bearish price bar.
However, RSI is not a standalone indicator and should be used in combination with other indicators like Moving average indicators or MACD.
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#5. Average Directional Index (ADX)
Average Directional Index (ADX) is one of the most used momentum indicators that provides information on the strength of a trend. If you think a stock is trending in a direction, you can use the ADX indicator to identify whether the trend is strong or weak.
An ADX value above 25 indicates a strong trend and below 25 indicates the absence of a trend.
For example, if the trend downwards and ADX is above 25 then you know that the trend is gaining strength and you can short the stock. If the ADX is below 25 then you should wait for price reversal signals.
Best Technical Indicators for Intraday Trading in India
#6. Relative Volatility Index (RVI)
The RVI measures the standard deviation of high and low prices over a defined period and indicates the direction of price volatility.
RVI is different from RSI which measures absolute price changes to indicate the direction of price volatility. However, the usage of the Relative Volatility Index is similar to the RSI.
RVI above 50 indicates a potential sell signal and below 50 indicates a potential buy signal.
Further, RVI values above 70 to 80 are considered overbought and hence, sell signals and below 30 to 20 are considered oversold and hence, buy signals.
In the above image, you can see the price movement following the buy and sell signal by RVI.
Note – Intraday trading is about capturing profits in short time frames, hence you should exit the trade at the right time.
As you can see from the chart, the price went up for a few candles after RVI was in oversold zone but started falling again. So it is important to keep booking profit.
You can use the RVI indicator as a confirmation indicator i.e. in combination with other indicators.
#7. Super Trend
The Super Trend indicator is helpful in describing the prevailing trend of the stock.
When the Super Trend is green, it means that the price is on an uptrend and when the Super Trend is in red, means that the price is on a downtrend.
When using the super trend indicator, you should enter a trade after the price has tested the super trend line at least once or twice and bounced back in the direction of the trend. This will improve the accuracy of your trade.
However, Supertrend may sometimes generate false signals in the ‘sideways’ market. A sideways market is when the price moves within a stable range.
#8. Balance of Power (BOP)
The balance of power indicator is used to measure the strength of buyers vs sellers. A positive value above 0 indicates that the buyers are in power and a negative value below 0 indicates that sellers are in power.
You should not enter a long trade when the BOP is below 0 as there are chances that the stock prices may fall further down due to the strength of the sellers.
Similarly, refrain from entering a short trade when the BOP is above 0 as there are chances that the stock prices may rise further up due to the strength of the buyers.
Divergences in the BOP indicator signal trend reversals. For example, when the price is forming lower lows candles whereas with higher lows in BOP, it is a bullish sign.
Similarly, when the price is forming higher highs candles whereas with lower highs in BOP, it is a bearish sign.
#9. On Balance Volume (OBV)
The On Balance Volume indicator conveys whether the volume is increasing or decreasing in a stock.
An upward sloping OBV indicates that volume is increasing in stock, and a declining OBV indicates that volume is decreasing.
If the price is going up with an advancing OBV, it means that there is a strong uptrend and you should consider taking a long trading position.
If the price is going down with a declining OBV, it means that there is a strong downtrend and a trader should go short.
If the price and OBV are going in opposite directions, it indicates that the trend is weak and might reverse soon.
Use the OBV indicator when you want to trade a stock that you think is showing a clear trend and want further confirmation about the strength of the trend.
#10. Volume Weighted Averages of Prices (VWAP)
VWAP takes into consideration both volume & price and shows as a VWAP line. The VWAP indicator is built by considering volume-weighted averages of prices.
The price above VWAP signals taking a short position and prices below a VWAP is considered as a buy signal.
If there is a buy signal, you should enter a long trade only when there is some evidence of bullish action on the chart (for example, a big green candle).
If there is a sell signal, you should enter a short trade only when there is some evidence of bearish action on the chart (for example, a big red candle).
#11. Average True Range (ATR)
Average True Range (ATR) is a volatility indicator, that measures the degree of price volatility.
The ATR can help you decide where to place your stop loss. When the volatility is high as indicated by the ATR, you should not keep a stop loss too close to your entry price or you may unnecessarily book losses.
Similarly, when volatility is low, your stop loss should not be too far from your entry price. Significant changes in ATR indicate a change in volatility which could mean a possible market turn.
When using the ATR indicator, you should look at historical ATR values as well to see whether the stock has a tendency to trade beyond ATR values. For intraday trading, you can use the ATR value to estimate how much the stock may move in say, 5 minutes, or 10 minutes.
The effectiveness of different indicators will not be the same for all stocks. You will need to practice and try out a number of permutations and combinations with these indicators to check how well an indicator is working on a particular stock.
Always backtest or check the historical price chart to see how well a particular indicator may have worked for the stock. You need to know how to read Japanese candlesticks charts to use the indicators most effectively.
Also, remember that technical indicators are generally ‘lagging’ which means they provide data for what has already happened. You will only be able to make good trades if you use these indicators after carefully analyzing the price action of the stock.