Seven Best Technical Indicators For Day Trading

Seven Best Technical Indicators For Day Trading

What if you could predict short-term crypto price swings with Jedi-like precision? Unlock your inner crypto profit fortune teller with these 7 technical analysis powerhouses designed to pump up your day trading game!

It's time to gear up for intraday crypto glory with the 7 most powerful indicators for lightning-fast profits!

Get ready to dive into the thrilling world of day trading, where buying and selling financial instruments all happens within the span of a single trading day. Success in this fast-paced environment often hinges on the savvy use of technical indicators. The exciting part? There's a plethora of these indicators at your disposal! Here's a sneak peek at some of the most popular technical indicators that day traders around the globe swear by.

What Is Day Trading?

Day trading is a wild ride of buying and selling assets within 24 adrenaline-pumped hours to bank profits from inevitable ups and downs. Day traders are often well-versed in the intricacies of trading and boast impressive financial backing. Many add an extra dash of risk by leveraging their stakes for larger potential gains. News junkies at heart, they ride the lightning-fast moves sparked by fresh headlines. Combine that with savvy technical analysis, and they're equipped to catch intraday swings down to the penny.

Given that intraday price movements can be a matter of pennies or fractions of a cent, substantial capital is often required to make the most of these shifts, especially for traders eager to leverage margin accounts. And watch out — volatile swings can trigger monster margin calls in seconds!

There are essential rules of engagement: Pick your targets strategically, plan entries/exits, and stick to it. And know your enemy — study patterns religiously to prep for battle.

👉 If you're hungry for day trading glory, strap in and grab this primer: Day Trading FAQs. It's time to step into the arena — are you trader enough?

Now, let's explore the indicators that can assist you in pattern recognition and strategic planning for day trading. While it may not offer the long-term foresight of traditional investing, it gives you as much foresight as day trading allows.

Moving Averages (MA)

The MAs come in two popular forms: Simple Moving Averages (SMA) and Exponential Moving Averages (EMA).

The SMA is the perfect starting point for any trading novice. It's as straightforward as it gets: To discern the price trend, all you need to do is observe the direction of the line. Remember, the SMA is a lagging indicator, reflecting past price movements. If you encounter terms like '50-day SMA' or '200-day SMA', they represent price action over the last 50 and 200 days, respectively.

One of the key perks of using SMA is its versatility. You can customize it to fit short or long trading periods. Keep in mind, the shorter the timeframe, the more sensitive the SMA is to price changes.

A blend of five, eight, and 13-bar SMAs, inspired by Fibonacci sequences, offers a robust fit for day trading strategies. You'll be visually examining the relationships between moving averages and prices, as well as discerning subtle shifts in short-term momentum from moving average slopes. Rising momentum signals buying opportunities, while a decrease could indicate it's time to exit. A drop that triggers bearish moving average crossovers in multiple time frames could offer short sale opportunities.

On the other hand, the EMA is like a souped-up SMA. It's a favorite among traders as it places more emphasis on recent prices, offering a clearer snapshot of current price action. Short-term traders often lean on the 12-day and 26-day EMAs, while long-term traders favor the 50-day and 200-day indicators.

EMAs are powerful tools for identifying oversold and overbought markets, trend reversals or continuations, and support and resistance zones. As with any moving averages, keep an eye out for line crossovers to spot buy or sell signals. A short-term EMA crossing above a long-term one signals a buy opportunity, and vice-versa. Again, the combination of 5, 8, and 13 EMAs is a commonly employed strategy in day trading, helping traders identify trends and potential entry and exit points:

  • When that fast 5 line penetrates above the 8 with both soaring above the 13 baseline, it's a blaring airhorn that momentum has swung to the buyers' side. This golden crossover means it's time to load up your long positions and ride the tidal wave higher.
  • If the 5 EMA penetrates south past the 8 and both plunge below the 13, that's your signal that the sellers have seized the reins and a downtrend is likely ahead. When you see this deadly crossover, it may be time to short and bank some profits on the way down.
Pic. 1. 5-8-13 EMA.
Pic. 1. 5-8-13 EMA.
👉 Eager to dive deeper into the world of Moving Averages? Here's your ultimate starter guide: Your Guide to Moving Averages.

Relative Strength Index (RSI)

The Relative Strength Index (RSI)  is your go-to tool for detecting whether an asset is overbought or oversold. It essentially gauges the speed of price changes, swinging between 0 and 100. An upper threshold of 70 signals an overbought condition, while a level below 30 suggests an oversold state.

RSI is a standard feature across all charting platforms, usually set to a default of 14 periods - but fear not, you can tweak this to your liking. Remember, overbought and oversold readings aren't immediate cues to buy or sell. Prices can hover in overbought or oversold territories for quite some time while trending, or can just mildly correct or even remain stagnant.

👉 Here's a pro tip to power up your trading game: For intraday trading, consider using RSI with a period ranging from 7 to 14 on a 5-minute chart. For long position holding on a 4-hour chart, an RSI with a period equal to or more than 14 could be your ideal choice.
Pic. 2. RSI-7 on a 5-min chart. 
Pic. 2. RSI-7 on a 5-min chart. 
👉 Can't wait to expand your knowledge about RSI? Dive into this comprehensive guide: RSI Crypto Trading.

Moving Average Convergence Divergence (MACD)

The Moving Average Convergence Divergence (MACD) is a technical indicator that provides a pulse on the momentum of a cryptocurrency, including its direction and strength.

Keep your eyes fixed on the MACD line and the signal line: the star players of the MACD indicator. A MACD line crossing above the signal line unfurls a bullish trend flag, while a dip below the signal line announces a bearish trend.

Also, the MACD indicator features a handy histogram, showing the difference between the MACD and signal lines. This nifty tool promptly indicates the strength and direction of the trend. A histogram perched above the zero line signals a bullish MACD, while one below it signifies a bearish trend. The more the bars expand or contract, the stronger the trend.

Pic. 3. The MACD indicator.
Pic. 3. The MACD indicator.

Most MACD derivations default to a 26-period Exponential Moving Average (EMA) and a 12-period EMA. While these averages can be customized, many traders prefer to stick to the standard settings, believing that indicators operate best when most people see the same signals.

Remember, while MACD is powerful, it shines brightest when used in tandem with other indicators, helping you glean the most accurate signals for your trading strategy.

👉 Get ready to unlock the power of MACD with this in-depth guide that will equip you with pro-level skills: The MACD Method.

Volume Weighted Average Price (VWAP)

VWAP (Volume-Weighted Average Price) is a technical trading indicator that calculates the daily average price for cryptocurrencies, offering a crucial edge for traders aiming to buy below or sell above the average price.

First off, remember that the VWAP line resets at the start of each trading day. And while most indicators rely on candle closes, VWAP keeps it real by factoring the true high, low, and close. When the market reverses, VWAP has your back to call the future trends.

Think of VWAP as the true average price — if the current price surges above that line, things are getting overheated and overbought. Sure, you can buy there, but you'll pay a premium for FOMO. Wait for pullbacks to VWAP and you'll scoop up those sweet discounts. When price drops below VWAP, it's time to do the opposite — the selling may be overdone and value awaits. Take advantage and accumulate crypto at bargain prices.

Pic. 4. VWAP.
Pic. 4. VWAP.

Bollinger Bands (BB)

Bollinger Bands (BB), a technical indicator that can guide you in discerning a trend's direction, spotting potential reversals, and tracking volatility. The magic of BB lies in its potential to help you gauge the intensity of an asset's rise and pinpoint when the asset might be losing steam or reversing.

Bollinger Bands consist of three lines: upper, middle, and lower. The middle line represents a moving average of prices, the parameters of which are at the trader's discretion.

The upper and lower bands flank the moving average. The distance between these bands is determined by standard deviations. You can set the indicator to your preferred number of standard deviations, although many opt for two. Again, there's no universal number, so choose a setting that aligns with your trading style and the asset you're dealing with.

On most platforms, the default Bollinger Bands parameters are set to N=20 and k=2, but feel free to tweak these and experiment with different values.

👉 Pro tip: If you’re looking for optimal day trade settings, consider using SMA with a period of 10 and bands at 1.5 standard deviations. If you’re a swing trader, opt for a standard 20 SMA and bands at 2 standard deviations.

Remember, narrow bands during low volatility often signal an imminent breakout in either direction. However, it's wise to wait for confirmation that the breakout is triggering a new trend to avoid getting caught in a solitary spike or slump.

So, how do you interpret BB in up/downtrends?

  • In a strong uptrend, the price often touches or runs along the upper band during high impulse waves. If it fails to do so, it might signal that the uptrend is losing its steam.
  • In a robust uptrend, the price shouldn't touch the lower band. If it does, consider it a red flag for a potential reversal.
  • If the uptrend is strong, pullback lows usually occur near or above the moving average (middle) line.
  • In a strong downtrend, the price typically touches or skims along the lower band during impulse waves moving lower. A failure to do so may indicate that the downtrend is losing its momentum.
  • When the price is in a strong downtrend, it should steer clear of the upper band. If it ventures into this territory, consider it an early warning of a possible reversal.
  • If the price is moving strongly downward, then pullback highs usually occur near or below the moving average (middle) line.
Pic. 5. Bollinger bands.
Pic. 5. Bollinger bands.

Stochastic Oscillator (SO)

The Stochastic Oscillator is a momentum indicator that guides you to find the perfect entry and exit points in a trade based on whether a financial instrument is overbought or oversold.

While it does involve some intricate mathematics, you're in luck — you don't have to fully understand it to use it effectively. But, if you're eager to know the nitty-gritty, here it is:

Slow %K = 100 [(Sum of (C - L14) for the %K Slowing Period) / (Sum of (H14 – L14) for the %K Slowing Period)]
Slow %D = Simple Moving Average of Slow %K,

C = Latest Close
L14 = Lowest low for the last 14 periods
H14 = Highest high for the same 14 periods
%K Slowing Period = 3

The Stochastic Oscillator ranges from 0 to 100. Areas above 80 signify overbought conditions, while areas below 20 denote oversold conditions.

Price rallies frequently pause after the stochastic reaches an overbought zone. On the flip side, stochastics reporting oversold conditions are widely seen as a sign that the bears are running on fumes.

On most occasions, it's best to stick with your trading platform's default settings. Here, you'd use the %K length at 14, %K smoothing at 1, and %D smoothing at 3.

Your unique trading style will be the compass guiding how much market noise you're ready to handle with the stochastic oscillator:

  • When the oscillator values are low, the indicator becomes super sensitive, providing a flurry of signals but also bringing along a fair bit of market noise.
  • In contrast, higher values make it sturdy and less sensitive, cutting through the noise but also giving you fewer signals.

Some savvy traders swear by stochastic oscillator settings of 8.3.5 for spotting chart divergences and jumping into the market amidst strong trends.

A ton of traders miss the stochastic’s magic because they're grappling to find the optimal settings for their market strategies. For instance, take a glance at the charts below:

Pic. 6. Different stochastic oscillator settings. 
Pic. 6. Different stochastic oscillator settings. 

Notice how different settings play out — short-term variables serve up early signals with a higher noise level, while longer-term variables dish out later signals with less noise. The exception? Major market turns when time frames sync up, firing off signals simultaneously across major inputs. And here's the kicker, major cycle crossovers suggest that settings don't hold as much weight at significant turning points as our knack for filtering noise levels and responding to fresh cycles.

The best part? You can always mess around and pick what works like a charm for the selected coin, your trading style, overall market sentiment, and prevailing circumstances.

👉 Looking to delve deeper into stochastic? Here's your starting point: Leveraging stochastic and Stoch RSI Indicators in Crypto Trading.

Fibonacci Retracement

Fibonacci retracement levels, born from the Fibonacci sequence, are these cool horizontal lines that hint at where support and resistance might pop up.

Each of these levels carries a percentage tag. This percentage tells you how much of a prior move the price has retraced. You'll come across Fibonacci retracement levels at 23.6%, 38.2%, 61.8%, and 78.6%. Not officially a Fibonacci ratio, but traders also commonly use the 50% level.

The beauty of this indicator lies in its flexibility. You can draw it between any two significant price points, like a high and a low, and the indicator whips up the levels between those two points.

Unlike moving averages, Fibonacci retracement levels are static. This fixed nature makes it a breeze to identify price levels quickly and then anticipate and react wisely when these price levels are put to the test. These levels act as turning points where you can expect some kind of price action, like a reversal or a break.

So, as mentioned, before you whip out the Fibonacci tool, you need to find a "swing high" and "swing low."

A swing high is like the king of the hill — a candlestick at the peak of a trend in any time frame that has lower highs on both sides. On the flip side, a swing low is the low candlestick of a trend surrounded by higher lows.

Once you've identified these points, pick the Fibonacci retracement tool in your trading software. Connect a swing low to a swing high, and you've got potential support levels, known as retracements. To find potential resistance levels, just repeat the process, but this time connect the swing high to swing low. Again, the retracements show up by dividing the distance from peak to trough using ratios in the Fibonacci sequence.

However, as you can see from the chart below, applying Fibonacci retracements alone tells us only so much. For instance, is the price of bitcoin about to tumble further or climb back up? With the stochastic oscillator at the bottom indicating an oversold condition, it looks like bitcoin's price is set to climb. So, you're ready to enter a buy position at the market price. Pretty thrilling stuff, right?

Pic. 7.1. Fib retracement alone
Pic. 7.1. Fib retracement alone
Pic. 7.2. Fib retracement coupled with stochastic.
Pic. 7.2. Fib retracement coupled with stochastic.

Using Bitsgap for Your Tech Adventure

First up — Bitsgap's trading terminal houses a TradingView charting interface that's sure to blow your socks off. Just tap the [Trading] tab and watch majestic technical charts unfold, packed with every indicator and tool you could dream up. Customize to your heart's content with multiple chart types, time frames, drawing tools, and even emojis! With an intuitive interface, you'll be charting like a pro in no time.

Pic. 8. Bitsgap’s Trading Interface.
Pic. 8. Bitsgap’s Trading Interface.

But wait, there's more charting goodness with the Technicals widget. This clever tool blends signals from top indicators into one, making spotting lucrative trades easier than ever.

The cherry on top? Bitsgap's killer suite of advanced trading bots and smart orders that leave other exchanges in the dust. We're talking GRID and DCA bots, TWAP, scaled orders — prepare for automated trading nirvana! Are you ready?

Bottom Line

Day trading means harnessing extreme market volatility and liquidity for profits! When prices rocket up, traders pounce on buys to ride the surge. If prices plunge, they short sell to cash in on the drop —  trading at lightspeed to catch every swing!

The crypto markets deliver volatility in spades, serving up constant opportunities for profit. But tread carefully with margin trading - you need a mountain of capital to avoid getting rekt.

Regardless of strategy, mastering technical analysis is mandatory for day trading glory. We covered the top indicators, but you may prefer more or less depending on your style and the market climate. Some traders roll deep with a stacked arsenal of indicators, while others keep it simple with just a few trusty tools.

Find your favorite flavor of indicators to suit your strategy — whether minimalist or packed to the gills! Combine that with discipline and their signals will help you lock in wins as you ride crypto's wild swings.


What Are the Best Indicators for Day Trading Crypto?

The top indicators favored by crypto day traders include Relative Strength Index (RSI), Moving Averages (MA), Moving Average Convergence Divergence (MACD), Bollinger Bands (BB), and Fibonacci Retracement.

What Are the Best Technical Indicators for Trading Crypto?

There's no one-size-fits-all answer for the best technical indicators — every trader has their own favorites based on strategy, asset class, and market conditions. But some all-star MVPs tend to make the starting lineup across crypto trading teams. These are some rockstar indicators that can give you a winning edge: Moving Averages (MA), Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Bollinger Bands (BB), Volume Oscillator, Stochastic Oscillator, Ichimoku Cloud, Fibonacci Retracement. Find your own all-star indicators lineup and customize it as market conditions evolve. Combine their unique strengths, and you'll have the ultimate toolbox to dominate any trading challenge.

What Is a Low Interest Indicator?

A "low interest indicator" as a specific term doesn't exist. But if you're trying to sniff out signs of low interest in a particular financial asset, there are three crucial markers you might want to investigate. The first stop is trading volume. Low trading volume could be a red flag signaling a lack of interest in the asset. Next, take a peek at the bid-ask spread. If you spot a wider bid-ask spread, it may be hinting at lower liquidity and interest. Lastly, don't forget to examine price action. If you see prices staying pretty much the same and not showing much volatility, it might be a telltale sign of low interest.

What Types of Technical Indicators Are There?

Technical indicators are your inside scoop for decoding market moves, and they come in all flavors: trend indicators like Moving Averages (MA), momentum indicators like RSI, volume indicators like On Balance Volume, volatility indicators like ATR, and cycle indicators like Fibonacci Time Zones.

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