Jessica Forex
A trader introduces the three indicators she commonly uses in her trend trading. She explains how she uses the EMA, MACD, and divergence as a tool for added confluence in her trades. She also emphasizes not to solely base trades on these indicators and to use them as a guide for momentum and trend direction.
The Three Indicators That Day Traders Need to Know
Introduction
As a day trader, it’s important to have all the handy tools that can help you make better trading decisions. And, indicators play a crucial role in trading. In this article, we’ll discuss the three indicators that are most commonly used by day traders.
The EMA
The EMA is a moving average that places more weight on recent price data. Day traders worldwide use the EMA to determine the direction of market trends.
Using the 200 EMA on the daily chart can help you get a big-picture view of the market trend. If the price is consistently below the 200 EMA, it indicates a bearish market, and if it’s above, it shows a bullish market. Moreover, instead of relying on EMA to enter a trade, you can use it to validate your entry decision, which will give you a more solid confirmation.
Trading with EMA’s
When day trading, it’s important to trade zone to zone and not use indicators as the only basis for entering a trade. Let’s say you have a bullish zone on your chart. If you plot the 50 EMA on the 4-hour chart, it will follow the price more closely, showing a gap between the price and the line, which indicates a strong trend. You can get in at a zone’s retest that coincides with the line. The 50 EMA can also act as a dynamic support and resistance line.
MACD
The MACD (Moving Average Convergence Divergence) is an indicator that measures momentum. The histogram is the most significant area to look at while analyzing the MACD. When entering a trade, if you see long bars in the histogram, it indicates strong momentum.
Trading with MACD
The MACD is a relatively easy indicator to understand. It helps gauge the strength of the momentum in the market. This strength can be measured by looking at the histogram, and if there are long bars, it shows that the momentum is strong enough to enter a trade. The MACD also has two moving averages that cross over (or move apart) to give entry points. Similarly, divergence can be used as an advanced technique to find strong entry points. But avoid using it as a beginner.
RSI
RSI is another popular technical analysis instrument that measures the widespread bullishness or bearishness in the market. It stands for Relative Strength Index.
The RSI is an oscillator that measures between 0 and 100 where values above 70 are considered overbought, while values below 30 are oversold. When the RSI is over 70, it indicates that the market is overbought, and when it’s below 30, it suggests that it’s oversold.
Trading with RSI
RSI shows how strong the buying or selling pressure is in the market. When the RSI indicates overbought or oversold conditions, it’s important to have patience in entering a trade. It’s wise to look for a reversal in price action, such as a bearish divergence or bullish divergence, when the RSI is indicating a break from these levels.
Conclusion
In conclusion, these three indicators, the EMA, MACD, and RSI, are widely used by traders as they give good trading signals. But, it’s important not to use them as the sole basis for entering a trade. Understanding these indicators and combining them with other technical analysis tools can help traders make informed trading decisions.
