Indicators are quite popular among traders around the world. They add confirmation to traders’ decisions. Most of the time traders combined indicators with a risk management tool to get better information about the price. Let’s explore the top 5 trend indicators for day trading in 2020.
02 Jun, 2020 |AtoZ Markets – Due to COVID-19 lockdown, a lot of people are looking forward to trading and learn certain trading strategies. Among all kinds of trading options, Day trading is a popular trading strategy nowadays. In this trading style, a trader trades within a 24 hour period. Some traders increase margin with the hope to gain better profit.
The indicators are most popular among newbies. It helps traders by giving information about price trend, volatility, market conditions, etc. Newbies take their decision to buy or sell trade using an indicator. Indicators are generally based on algorithms showing the past price data to help the traders to make a decision. It provides information usually about the market’s volatility, trend strength, and overbought or oversold market conditions. Day traders cannot make a profit from a shorter time frame only with the help of fundamental analysis. Therefore, traders need to use indicators to see the market condition and price action before taking a trade.
Moreover, the indicators provide extra confirmation about price and volume through mathematical calculation. It also provides predicting information about future price action.
5 Best Trend Indicators Every Trader Should Know
There is a lot of indicators in the market. Different types of indicators also available in the market. In this article, we have described the top 5 trend indicators for day trading. Let’s see the list of top 5 trend indicators for day trading in 2020:
- Moving Average
- Bollinger Bands
Let’s have a look at those indicators.
The moving average (MA) is one of the most popular trend indicators. It provides the average price of a certain period. The trader can get a smooth price direction despite continuous up and down price action. It is also one of the best trend reversal indicators. There are two most popular types of MA. They are the Exponential Moving Average (EMA) and the Simple Moving Average (SMA). Both of them provide potential trend direction and support/resistance levels.
There are a lot of MA strategies in the market. For the beginners, when the price is above the MA line, it means price probably goes up. Moreover, when the price is below the MA line, it means the price probably go down. Traders also can set both (EMA and SMA) on a chart. When both of the line crossovers, it also gives a trading signal. However, if two different periods of MA set on the chart, they may show a different trend.
MACD stands for Moving Average Convergence/Divergence. It also one of the simplest and most used trend indicators in the market. It is a stochastic oscillator used to determine price trends. However, unlike other oscillators, most of the traders don’t use it to identify overbought or oversold market conditions. MACD shows the connection between two MA of the price. It is also the best trend reversal indicators.
Moreover, it gives trading signals like MA when its two-line are in the crossover. If crossover happens above 0, it generally gives an uptrend signal. If crossover happens below 0, it generally gives a downtrend signal. There are three numbers in MACD. The first one is to calculate the faster-moving average. The second one is to calculate the slower moving average. And the third one is to calculate the difference between the faster and slower moving averages.
ADX stands for Average Directional Index. It is used to determine the price trend strength. It is also used as a trend and range finder, and as a filter for different trading strategies. Unlike other trend indicators, it doesn’t show which direction price will go. It only shows if the price will go up or down how strong it will be.
When the ADX line is below 25, It means weak bullish/bearish trend like non-trading or ranging market. If the ADX line is above 25, That signals strong bullish/bearish trend. It only provides information that is the price ranging or starting a new trend. It also doesn’t provide exact information, whether it’s a buy or a sell.
Bollinger Bands is also one of the most popular trend indicators created by John Bollinger in the early 1980s. It is used to measure price volatility and trend. It looks like a three-line price channel. All line is plotted at a standard deviation and moving average. Upper and the lower line also act as support and resistance levels.
During price volatility, the price remains close to the upper and lower line. During the price trend, if the price breaks the line, it means the trend is fading. At the time of price breakout, upper and lower line squeezes. If the price breaks the upper line, it gives signal uptrend. If the price breaks the lower line, it gives signal downtrend.
Bollinger Bands also show overbought and oversold market conditions. If the price touch the upper band, it tells overbought market condition. If the price touch lower band, it tells oversold market condition.
ATR stands for Average true range. It is a commonly used trend indicator among day traders, developed by J. Welles Wilder in 1978. The indicator simply smooth average of true range values. It does not provide the future price direction. It helps the trader to measure trend volatility. Traders specially used this indicator to place stop-loss orders.
At the time of low volatility, the ATR line keeps going down. And during high volatility, the line keeps going up. At the volatility market, the indicator help trader to place trailing stop. So, the trader can reduce or increase the level. It can maximize the trader’s profits and minimize risk.
As mentioned above, the indicators show calculations based on only previous price data. It helps the traders in their technical analysis to anticipate future price action. Sometimes traders use multiple indicators for better results and confirmation.
Traders can use different kinds of indicators and combine different calculations to make a better trading strategy. To be honest, there is no single best indicator to trade solely based on in the market. So, the traders should combine different indicators to get a better result.
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