Sharekhan Blog

How To Choose The Best Technical Tools For Intraday Trading?

  • Sep 29, 2023

Let's examine some of the most well-liked technical tool for intraday trading to reduce risks while generating enormous rewards.

  1. VWAP

Volume Weighted Average Price, often known as VWAP, is an intraday trading indicator. An investor that transacts intraday must monitor the stock's volume. VWAP is a reliable volume indicator that measures the value of a stock traded about the total volume of that stock traded at a given time.

  1. Stochastics

George C. Lane created stochastic momentum in the 1950s. It is one ofthe most often used indicators and has long been a viable alternative for intra-day traders. It may be used for swing trading as well as intraday trading. An investor must assess the momentum of a stock he is trading when engaging in intraday trading. Stochastic Indicator performs the required computations using the formula shown below:

(Current Close - Lowest Low)/(Highest High - Lowest Low) X 100 is the formula for the percentage of K.

3-day SMA of % K divided by percentage of D

The lowest low during the reference period is the lowest low.

Highest High is the peak value for the reference period.

A trader's trading style should be considered when changing the default look-back time, which in this case, is 14 days. For example, an intraday trader X may want to employ short-period stochastics. It should be noted that trading signals are produced when the Stochastic's %K line crosses the %D line.

  1. Bollinger Bands

Bollinger bands are another well-liked statistic that intra-day traders employ to analyse market volatility. Bollinger bands usually come in three different varieties:

  • A 20-day simple moving average with a middle bang
  • An upper bang with a 2 Standard deviation
  • A lower bang with a -2 Standard deviation

A stock's price varies between the upper and lower bands. The band tends to go wider when the market is moving, the volatility is substantial, and it tends to get smaller when the volatility is low. Bollinger bands assist intraday traders in determining a stock's price range. The broadening and contracting of the band also allow traders to look for market momentums and enter trades at advantageous prices to maximise rewards.

  1. The Relative Strength Index (RSI)

The range of this indication is 0 to 100. Recent price increases and declines are shown in one another. Thus, the RSI levels play a significant role in gauging market trend strength and momentum. An RSI may also be an overbought and oversold indicator, one of its fundamental applications. 

Accordingly, an asset is overbought and expected to depreciate when the RSI rises over 70. However, when the RSI falls below 30, it is indicated that the asset has been oversold and may rise again. To avoid making assumptions, some traders wait until the Indicator goes above 70 and then descends below before selling or until it drops below 30 and comes back above before buying. Divergence is the typical usage for RSI. The price trend looks weak and may quickly reverse when this Indicator is going in the opposite direction of the price. For support and resistance levels, RSI is also employed. Stock is typically maintained above the 30 levels and regularly hits 70 or above during uptrends. The RSI often remains below 70 during a downturn and regularly dips to 30 or below.

  1. On-Balance Volume

On Balance Volume (OBV) is a popular volume indicator that measures volume variation to speculate on price movement. Most traders think that aggressive transactions from institutional investors drive costs, not volume. Thus, the final Volume indicator assists us in pursuing this positive capital flow into the market and indicates future value direction. We may even see a sharp upper limit or decline in value soon if there is a change in OBV price that exceeds a change in worth for a certain fundamental measure.

Investment tips for intraday traders

Although these technical indicators are fundamentally important for intraday trading, one should also bear in mind that they shouldn't trade based on a single intraday technical signal. Investors should know that combining these indicators will help them choose their most acceptable intraday trading approach. For instance, one may consider a volume indicator and a momentum indicator for volatility. Investors' quest for financial independence will advance significantly if they make the most of these recommendations.

Team Sharekhan
by Team Sharekhan

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