Day trading indicators, which are the best indicators settings on your broker platforms?
And how exactly do you use them?
One of the most common asked questions on my channel, besides asking if im single or
not, is what indicators do I use in day trading, and which ones are the best, thats gona make
you easy millions of dollars.
And as someone whos been day trading for good six years now, I’ve certainly gone through
tons of indicators from MACD, RSI, paraoblic SAR, moving averages, VWAP, ichimoku clouds,
bollinger bands, and smashing the like button, the list just goes on and on
I personally do not suggest relying on indicators, but i get it, if you are a beginner trader
this is usually where people like to do to get started with finding the perfect entries
and exits. I traded with many indicators myself when i was first learning to day trade as
well.
While I no longer use any indicators besides VWAP which I will go over why in a little
bit, I still know a few things about all these various indicators and the best ways to use
them. And when I was using indicators to trade, the best ways I found is to use them in pairs.
Meaning that no trading indicator is really that useful on its own, but they become very
powerful when you put lets say RSI and MACD together, and vwap and moving average as a
a pair.
So in this video we’ll be talking about the most popular indicators out there and
how to best use them for day trading beginners, as well as what i think are the problems with
relying on these indicators. Once again, there are no right way, or wrong way to use these
indicators, its all up to your personal trading style.
So first and foremost, the indicator pair that so many day traders love to use is the
MACD and RSI. MACD stands for moving average convergence divergence. This is a trend indicator,
meaning that it tells you when there is a reversal of trend coming along, whether a
stock is starting to breakout to the upside, or selling off to the downside.
And how to read this MACD indicator? By default this is what the settings look like in thinkorswim,
and you can do the same in any of your broker platforms. Again, you want to use the default
settings of 12,26,9, because the whole point of using these trading indicators is that
you see what the majority of the crowd sees right? This is a trend indicator, you want
to see when the buying or selling money flow changes.
So basically when the two lines, the blue being the fast line, and the white being the
slow line, crosses each other, thats where thes stock starts to change trend, and the
histogram, this pretty looking green and red graph down here, starts to disappear.
You can see when the blue line crosses over the white line and the histogram turns red
to green, this stock SPCE started trending up higher. And when the blue line crosses
beneath the white line, and histogram becomes red, the stock is slowly selling off to the
downside.
But wait, remember I said this works best when you pair the MACD indicator up with the
RSI. RSI, relative strength index, is a momentum indicator that tells you when a stock is overbought,
which is when the line crosses above 70-90, meaning there is too much buying to the upside
and we could potentially be exhausting the buyers and we’re near the top;
or it tells you when a stock is oversold, when the line dips below 30, meaning that
there is too much emotional selling and we are near a bottom level, the stock could start
to bounce. Again, you want to use the default settings with RSI in thinkorswim.
The whole purpose of using RSI indicator is to pick the top and bottom of a stock. Which
sounds kind of similar to trend reversal with the MACD indicator.
So thats why people like to pair these two indicators up in day trading. Because just
by itself, MACD is a lagging indicator. Meaning that it takes a while for the fast line and
the slow line to decisively converge. Which is fine for swing trading in general, but
for day trading where precision in entry and every single second counts, its not exactly
ideal.
RSI ,on the other hand, i find it to be early just by itself. As you can see from this example
here, RSI line crosses above this 70 and starts turning red, but the stock still keeps on
going up higher for the next 10 minutes. And its the same way the other way around as well
to the downside.
And thats why it’s a good idea to combine your RSI indicator wiht your MACD. so when
you see the lines on your MACD start to cross and the RSI is still not hitting 70 yet, you
could probably start looking for an entry.
when you see RSI starts turning red above the 70 zone, dont worry, check your MACD indicator
and see if the fast line and slow line are still far from crossing. If thats the case,
they stay in the trade.
But the oversold RSI is just there to remind you that a reversal could potentially happen
soon. Same thing with the sell off here, yes the RSI indicates that the stock is oversold
you can start looking for entries to bounce the stock back, but the MACD hasn’t confirmed
a crossing yet to indicate the upside. So you wait for both of these indicators to align
before taking an entry.
So as you can by using this RSI and MACD indicator pair does, yes it indicates to you where there
is a potential reversal coming soon, but still requires you to be patient and wait for confirmation,
instead of jumping in right away when you see there is a potential top to enter short,
or a bottom to enter long. I personally found this indicator pair to
work better when trading mid cap and large caps. Not so much for trading volatile penny
stocks. Is this RSI and MACD indicator going to give you 100% win rate all the time? Absoltuely
not, nothign is 100%gauratneeed in day trading. the only to do so is if u remember to hit
the like button at the bottom of this video.
I find the better indicator pair to use for trading low float penny stocks, is vwap and
9 ema pair. Vwap stands for volume weighted average price. It indicates relative strength
or weakness of a stock. So for example, if a stock is trading above vwap, that means
its bullish, and the majority of the volume are the buyers.
And vice versa, if a stock is breaking beneath vwap, that means its weak and the sellers
have control of the stock. That is simply just the most general way people use vwap.
Its a guide to indicate whether the stock is a bullish short term or bearish short term.
And if a stock is just trading around vwap, holding above it for a little but breaking
down beneath really quickly only to come back up again, that means generally the stock is
choppy. And the direction is undecided, or that could indicate a vwap trap, which is
something you hear me mention a lot in my trading recap videos.
Because vwap is such an extremely generally strength indicator, how everyone uses it is
slightly different. And how hard the stock pulls away above or beneath it could indicate
a potential extension. We’ll talk more about vwap trap and vwap extension later on.
So you can add vwap here in thinkorswim studies settings. Again, I always just use the default
settings, I never tryu to change any of the numbers up there. You can change the colors
if you want in this vwap tab. Very important though make sure to turn off upper band and
lower band. And there you have your default vwap.
At the moment, I just use vwap by itself, but I have found that combining the vwap indicator
with the 9 ema to be quite useful. EMA’s stand for exponential moving average which
tracks the overall trend of a stock over a designated period of time.
I get this question a lot, what's the difference between EMA’s and SMA’s, simple moving
avg. Compared to SMA’s, the EMA’s put more weight on the current price fluctuations.
So this indicator react faster to current price changes, so its more ideal for active
intraday trading.
On the other hand SMA’s updates slower because it calculates the overall period weighted
equally. So SMA’s are better for swing trading and longer term trading generally.
Now what this 9ema and VWAP pair does is that it indicates the start of a very strong break
out, generally speaking. Again you can set this up by going to studies, edit studies
in thinkorswim and look for moving average exponential.
You can set your length here to 9 if you are using the 9 ema, some common ones many people
love to use are the 9, 13, and 15. And honestly, the difference really doesn't matter as you
can see here.
But again, this is my own opinion, as a trader who do not rely on any indicators anymore.
There are many people who swear by it im sure.
So using the VWAP and 9EMA pair is really simple. Since vwap shows you the strength
like we talked about earlier, and the ema shows the trend. If you put them together
that should indicate to you when the strongest trend change is going to occur, right? In
the perfect thats what should happen.
So in this instance, you can see when the 9ema the white line crosses over vwap, that's
where a strong breakout occurs, and vice versa when the white ema crosses below vwap, that
shows a strong sell off.
The further the white 9ema pulls away from vwap, that indicates the stronger the breakout
is to the upside. And vice versa on the downside. So that tells you do not fight the trend or
the strength, just buy the dips if the stock is strong, or short the pops if the stock
is weak.
Now that you’ve seen the two pairs of indicators that I liked using when I was starting out
years ago, you must be wondering, so why did you stop using them, or any indicators at
all?
Well heres my answer, using indicator, in my opinion, is a distraction from observing
the real price action of the candles. All these indicators loko picture perfect in hindsight
after the move has finished. Its just like memorizing patterns. These things do not provide
you the little nuance regarding who is trapped in pain and where the momentum is going.
In the moment, in real time, the way the candles move and how hard it rejects a resistance
or bounce off a support, thats real price action. And thats the only indicator really
in real time, that's not lagging and that can really give you the best anticipations
and confirmations in day trading.
Dont get me wrong, using indicator pairs like i've talked about here is a good way to get
started, for beginner traders to start seeing the trend changes and where the overall condition
might be extended to the upside or downside.
But i do encourage you, once you start seeing some progress trading that way, shift your
attention to observing the candles and price action in real time. You will find doing so
to give you way better entries and better read on the stock.
Like i said, the only indicator I leave on my chart nowadays is just vwap, and volume.
So if you want to see a video dedicated to how I use vwap in day trading, and how to
spot little long traps and short traaps, let me know in the comments section below. And
also, let me know what your favorite indicators are and how u use them, im always interested
to hearing what other traders use .