Best 3 Day Trading Indicators – On and Off Chart [Video]

Day Trading Indicators Video

Before we dive into day trading indicators, first review the below video which is a nice primer.

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When you are just starting in day trading, you will likely feel overwhelmed with where to begin.

You need to think through your trading plan, trading strategy, trading platform and this is just the beginning.

The other key area of focus is what technical approach will you leverage to succeed in the market. Let's be clear, you cannot day trade the market using fundamentals. It's a short game. So short, that most of my gains are made in 3 to 4 minutes.

So having the right tools to analyze the market is paramount to your success.

To this point, we are going to highlight the three-day trading indicators you can use to beat the market.

The three components we will cover in this post are (1) time frames, (2) on-chart indicators, and (3) off-chart indicators.

Picking the Right Chart Time Frame

I do not want to suggest there are any hard rules around the best time frame to day trade. You may have a higher patience threshold and prefer to use 15-minute charts, and I might have a lower patience threshold and prefer tick charts.

You should, however, consider a few things to make up your mind about picking the best time frame for your trading style.

First, you need to answer what time of day do you plan on trading.

Early Morning

If you have a day job, you probably are only going to be able to trade the first 30 minutes to one hour. If this is the case, then you are going to want and trade the one minute, two minute or three minute chart time frames.

Why such low time frames? Simply put, you need to ride the quick waves higher and also protect yourself quickly if things go against you.

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For example, if you are trading a low float breakout, you will sometimes know within seconds if the trade is real. You don't need to wait for a 15-minute bar to print to tell you where to buy and scale out of your position.

Midday Trading

I do not trade in the middle of the day because the action is too slow and give back gains from the morning.

Since the action is slower, you will only confuse yourself using lower time frames. If you are trading after 11 am, you will want to use the 5-minute or 15-minute chart.

This will allow you to draw trendlines connecting key support and resistance levels. You will also not overreact if a high or low of a candlestick is breached.

You essentially are going to use the higher timeframes to quiet the noise from choppy lunchtime trading.

End of Day Trading

You can use the same approach for the end of the day, as the early morning setups. The only difference is the end of the day is the driver to getting you in and out of the market quickly.

You do not have time for 60-minute charts since this would only give you two bars to make decisions at the end of the day.

Bringing it Altogether

So, the rule of thumb is that you should use a lower time frame when you have less time for day trading activities. Similarly, you should use a higher time frame when you are keeping an eye on the market throughout the trading day.

Figure 1: Comparison of a Bullish Move of Apple Inc. on 5-Minute and 15-Minute Chart Time Frame

Figure 1: Comparison of a Bullish Move of Apple Inc. on 5-Minute and 15-Minute Chart Time Frame

In the above chart of Apple, notice how the 5-minute chart produces three times the number of bars. You can easily see this presents some buy and sell signals that otherwise would go unnoticed.

You will need to think through which time of day works best for you and then the corresponding time frame which will give you the most success.

Using On-Chart Indicators for Technical Analysis

If you add many indicators to your chart, let me be the first to tell you it's a complete waste of time.

Hence, taking a “less is more” approach would not only help you declutter your chart, but also make it much easier for you to interpret the price action.

Best Day Trading Chart Indicators - Volume, 10 Period SMA, and ATR Indicators

Figure 2: Apple Inc. 5-Minute Chart with Volume, 10 Period SMA, and ATR Indicators

I strongly recommend that you keep the Volume indicator on your chart at all times.

In addition to the volume, I always keep the 10-period simple moving average (SMA) indicator on the chart. The 10-period moving average is one of the most popular day trading indicators among day traders. It is fast enough to give an early indication and direction of a significant price move when you are expecting a stock to break in a direction.

Lastly, I like to use the Average True Range (ATR) indicator to gauge the volatility of the security.

For example, Microsoft is not as volatile as a stock like Tilray. Therefore you need to know the behavior of the stock you are trading. This will allow you to adjust your risk parameters and money management rules.

So, to quickly recap, you need candlesticks, 10 SMA, volume and the ATR. This is more than enough for you to interpret the price action.

Using Off-Chart Indicators in Day Trading

While you would find the on-chart day trading indicators to be essential for technical analysis, at the end of the day, charts and indicators are just sugar-coated versions of the order flows that makes up the overall supply & demand in the market.

If you were a retailer, selling fruits, would you prefer to buy from wholesalers or the farmers themselves? Where would you get the best price? Of course, from the farmers.

In this analogy, if you would get the wholesale information about the market from technical indicators, you would get the best data from the Level II quotes. These quotes are the actual pending orders that other traders have placed with their brokers.

Figure 3: Apple Inc. Level II Data

Figure 3: Apple Inc. Level II Data

There are times where my chart will scream buy the breakout, but level 2 is telling me to stay away. I have no quick way of telling you how to interpret the level 2 data. It's simply going to come down to you watching price action and level 2 to "feel" the market.

I know that sounds like nonsense, but I know when my stock is done. I can feel in the pit of my stomach that the move is over. When I don't listen to that 6th sense, this is when I get into trouble.

To put it in more concrete terms, if you know that there are a large number of pending buy orders below the current market price compared to sell orders, which way do you think the market is going to break?

To explore more on level 2, please check out our article here.

Time and Sales Data

Figure 4: Apple Inc. Time & Sales Window on TradingSim.com

Figure 4: Apple Inc. Time & Sales Window on TradingSim.com

When it comes to day trading, I also heavily depend on another off-chart day trading indicator – the time & sales window. Tradingsim offers this data in the which is also known as the traditional “Tape.”

Once you start watching order flow in the time and sales window and depth of the orders in Level II, you can take your day trading to the next level.

Conclusion

Keep things simple when trading the markets. The more day trading indicators on the screen the harder it will be to figure out what the hell is going on.

Start with the tactics identified in this article and see if it doesn't help bring clarity to your trading.

There is also something called total view which displays all of the open orders in the market. I do not feel total viewer is something you need to actively trade stocks, some of you might find it useful.

It is provided via the Nasdaq and of course comes with a fee.

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Al Hill Administrator
Co-Founder Tradingsim
Al Hill is one of the co-founders of Tradingsim. He has over 18 years of day trading experience in both the U.S. and Nikkei markets. On a daily basis Al applies his deep skills in systems integration and design strategy to develop features to help retail traders become profitable. When Al is not working on Tradingsim, he can be found spending time with family and friends.
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  • Thanks for sharing this info. very often a trader who has begun is just caught in the frenzy of using as many indicators as possible. It takes years to find the niche for a trader.As you have rightly pointed out less is more is very effective.I also use HPI on 15 minute chart which is greatly beneficial in deciding the lot size. Cheers.

    Reply

  • Hi,

    Can you please let me know how to set up periods in ADX charts for 5 minute trades ? I am with mny other charts but my ADX chart is giving me contrary signals.

    Cheers.

    Reply

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