Which indicator is best for day trading and how do you use them to fit your trading strategies.
Hello everyone my name is shay aka humbled trader as somebody who's been day trading for over
7 years now I've certainly gone through tons of different indicators from macd, ichimoku clouds,
simple moving averages, VWAP, bollinger bands and smashing the like button the list just goes
on and on as a full-time day trader i personally do not recommend relying on indicators anymore
i prefer to have my charts very clean like this without layers of indicators and i will explain
why later on in the video but if you are a beginner day trader using indicators is definitely
a good way to start learning to plan your entries and exit and start building your trading strategy
in this video we'll be talking about the most popular trading indicators out there for new
traders and how to use them to fit your trading strategies let's start by talking about the first
indicator MACD. MACD stands for moving average convergence divergence this is the trend indicator
meaning that it's an indicator that short-term day traders like you and i can use to predict
the potential reversal of the stock direction so basically how you use this indicator is
by looking at the lines and the little green and red little histogram charts at the bottom
so the blue line over here it's called the fast line and the slow line is this white or yellow
line here when they start crossing over the blue line goes under under the white line that's when
it starts to change in trend and at the same time you're going to see this green bar slowly
disappear and turn red. So during this transition usually it's where people look for the reversal
so when you start transitioning here as you can see tesla stock reached a high of 1054 and when
during the slowly roll over all the way down to 1040 that's where you see the lines crossover
and the histogram slowly disappear and the same thing would be for the other way around right
when you see a stock that's just aggressively selling off when you're looking for the bounce
so atvi you can see the stock went from 72 dollars all the way down to 66 dollars so this is where
when it's aggressively selling off you can look at the histogram now you're looking for the other
way around now so you want to look for the red histogram slowly turning the green and the white
line to go under the blue line this time around. So during this transition you can see the stock
reach a low of 66 dollars and over here it's when the slow transition of histogram slowly happens
note that it's a very slow transition when you're using these kind of trend indicators because it
needs time for the prices to catch up so you see the blue line slowly crosses over the white line
and the histogram slowly turn from red to green that's where you start getting the bounce from low
of the day around 65 dollars and slowly recovered over to 66 and 67 dollars. And very important
here when it comes to indicators like macd and a couple other ones that we're going to talk about
later in the video you want to just stick with the default settings here so if you look at this
MACD here it's on the 12 26 and 9 exponential settings and here are some tips i have for you
if you decide to try out this macd indicator use this indicator on the higher time frames such as
10 minutes or 5 minutes notice that earlier on the demo i showed you i'm using it on the five minute
chart instead of one or two minutes. The reason is because again this macd indicator is a trend
indicator and for trends to form for the stocks for each candle you need to give it time for the
volatility and the price action to slowly catch up if you use the one minute or two minute chart
on this MACD indicator you're gonna get a lot of false breakouts and false breakdowns. Second tip
i have for you is to add another indicator to this strategy essentially using two indicator
pairs which brings us to the second indicator that's very friendly for beginner day traders RSI.
RSI stands for relative strength index this is a momentum indicator this time around
and it tells you when your stock is overbought or oversold meaning that there's too many buyers
or sellers crowded on one side of the trade. So down here you can see this is the RSI indicator
this white line on the top is 70 value and down here is 30. whenever you see this line crossing
above 70 and especially when it gets really close to the 90 territory that means the stock
is potentially overbought means there's a lot of buying in the top over here and the buyers could
potentially get exhausted and you might see some short-term profit taking and the other side will
be using this indicator to find oversold stocks means the stocks had a lot of emotional selling
as you can see here when the stock went from 148 all the way down to 143 and then later on 140
to 80s when there's a lot of emotional selling and you see the rsi crosses below 30 mark
that's when it's oversold and a lot of times that's where traders use it to time the bounce
the reversal to the upside once again this is how you set up your indicator in your broker platform
or if you're you also using thinkorswim over here go to the edit studies and search for RSI
and just add it over that's where you'll find the RSI indicator i'm using the default settings again
the length is 14 the overbought i still have it set at 70 and 30 for oversold the whole purpose
of why traders like using RSI indicator is to try to find the top and the bottom of a stock
on the reversals which sounds pretty similar to the trend indicator we just talked about
with MACD so that's the reason why many traders like to use macd and rsi together as a pair
because by itself macd is a lagging indicator meaning that it takes a while for the fast line to
slowly converge with a slow line and same thing with a histogram on the other hand though rsi
indicator is usually early. So over here we're looking at the charts for Rivian, RIVN and on
the indicators you can see that i have the rsi and the macd all the default settings lined up at the
bottom over here you can see that while rsi had turned red and went above the 70 mark for a couple
of times the stock just kept on climbing higher around the same time over here right it turned
red over here but the stock was still near the highs and it still made another new high later on
but if we also use the macd near the bottom you can see that only slowly started converging around
this time so the fast line crosses under the slow line and you can see the green slowly rolled over
to become the red histogram so that's why you can pair them up together and slowly find the top
you can see in this example here this stock rivian just kept on climbing to new highs around 150s
even though the rsi had shown that it's overbought for a couple of times so that's why rsi is usually
early like we talked about earlier over here but if you pair it up with the macd indicator
near the bottom you can see that it only started rolling over around here around 12 o'clock after
the stock had retested that 150 mark many times on the five minute charts so that's why it's a good
idea to line both of these up you see the rsi yes it turns red over here and also the histogram and
the fast line slowly crossing under the slow line on the macd if you pair them up together that's
where you can get a better timing nothing is going to be exact but it's a lot better than all the way
about an hour early and it will work as well if you're using the pair to find reversal
to the upside so for example after the stock rivian started selling off from 150s
down here to around 139s you can see yeah you can also get a wick candle on the five minute chart
and you see rsi it's at 30s and yes that's still early on but you can see slowly this MACD near
the bottom starts to converge the fast line crosses over the slow line that's where you get
the confirmation for the bounce and you slowly get the reversal to the upside to new highs.
So you can see now with the examples by using the rsi and the indicator together as a pair
they can provide you information where there's potential reversal coming up soon but they still
require you to be patient and wait for multiple confirmations instead of just jumping into the
stock right away so earlier we mentioned that the first tip for using the macd and rsi indicator
pair is to use higher time frames like 5 minutes or 10 minutes now the second tip i have for you
is to use this indicator pair for the large cap stocks only when i used this indicator pair in my
first two years of day trading I personally found them useful for the large cap or the mint cap
stocks because they tend to trend a lot better not so much for the volatile low flow smoke cap stocks
because let's face it a lot of times they give you the fake breakout and a lot of sudden rug pulls is
this indicator pair going to give you a hundred percent win rate all the time no absolutely
not the only way to do so is if you remember to hit the like button at the bottom of the video.
I find that the better indicator pairs to use for trading low float small cap stocks are v-wap
and volume and these two indicators are the only ones i have on my charts so here's how you set up
the v-wap and volume indicator go back to your studies on thinkorswim um and search for vwab
and very important that to get get rid of the arc MACD and RSI and go to view up settings
because by default if you just click apply you get tons of lines a lot of like these like
useless lines i don't know why they give you like three lines when you really just need the middle
so how you get rid of the top and bottom is go back to the settings for vwap
go to upper band and get rid of show plot and show bubble and same thing for the lower band you want
to uncheck every single one and that's how you get only the true VWAP to show up on your charts
so it would look something like this that's the correct view of setting to use and once again we
want to add volume as well so go back to studies and i like to use volume average and add selected
and apply so that's where you get the volume at the bottom of the chart and VWAP and again that's
all i use when it comes to day trading v-wap stands for volume weighted average price so it
takes accounts into the historical price and the volume when indicating to you the traders
the strength or the weakness of the stock. So you see this pink line over here once the
stock is trading above this VWAP indicator above this line if you see steady volume coming in and
a stock is creating higher highs and higher lows then the stock is strong it's up trending and it's
relatively strong in comparison to the historical price and volume intraday. Now remember to look at
the volume indicator down here ask yourself is the volume consistent and is it slowly increasing that
would be ideal and over here if you see that the volume is yes it's consistent and it's increasing
while the stock is trading above VWAP then it's very bullish then you can look for pullbacks to
long the stock and vice versa if you're looking to short a stock to the downside if you see a
stock breaking below VWAP and most importantly holding below it that means the stock is very weak
and the sellers have control of the stock now take a look at the volume beneath that VWAPindicator
is the volume slowly increasing while the stock is trending below VWAP in this case right you
can see especially near the end of the day the volume really increased then the stock is going
to be a no bounce city on the way down this is simply just the most general way to use VWAP
it's a guide to indicate whether the stock is bullish or bearish short term for day trading
now that you've seen the two pairs of indicators i recommend using you must be wondering okay shay
why are you not using any of these fancy pretty looking indicators anymore i thought the more
indicators you use the more money you make the truth is all these indicators look picture perfect
in hindsight after the move is finished it's kind of just like memorizing candlestick patterns
these things do not provide you the little nuances regarding who is trapped in pain and
where the momentum is going it's all about taking baby steps especially if you're a brand new trader
using a lot of indicators in trading is like having training wheels when learning to bike
it's perfectly fine to start if you're new but eventually you are going to outgrow them
as a trader. Only indicators i leave on my charts nowadays are VWAP, Volume and elon musk's twitter
account. If you're interested in learning more of my day trading strategies without relying
on indicators or memorizing patterns feel free to check out the humble trader academy
on my website let me know in the comment section below what kind of indicators you are personally
using when day trading. If you enjoyed the video please remember to drop a like and subscribe.
Thank you guys so much for watching as always I'm the humble trader and I'll see you guys next time
you