What is the Best Day Trading Indicator?

If you are looking for the one Holy Grail day trading indicator in this article, you’re in for a rude shock.

I am not giving you any sure-win “buy when green arrow appears” indicator. But you may get more than that.

Best Day Trading Indicator?

Before you search for the best day trading indicator, answer the following questions.

What do you want to use the indicator for?

The choice of your day trading indicator depends on what you want to do with it.

If you want to find trends and trade them, moving averages are your best bet.

If you want to find momentum that has stalled and an impending reversal, an oscillator will have hints for you.

If you don’t understand what is trend and momentum, you should stop your search for the best day trading indicator, and learn more about technical analysis before continuing.

(Start with Technical Analysis: The Complete Resource for Financial Market Technicians.)

Do you know how to use the indicator?

Most free off-the-shelf trading indicators do not print green and red arrows to tell you when to buy and sell. Before you choose an indicator for day trading, you should learn how to use it.

Although your trading software will draw the indicator for you, learn how to build the indicator. You do not need to memorize the formula, but you need to understand what pieces of data goes inside it and its working logic.

Learn how to interpret the indicator and the impact of different settings.

An indicator is a tool. You must know how to hold it and how to wield it. Don’t hold the knife by its blade without realizing.

Why does the indicator work/fail?

Indicators are fallible.

Actually, that’s an understatement. We don’t really call things that can bankrupt us overnight “fallible”. And indicators will, if you use them mindlessly.

Understand the drawback of your chosen day trading indicator. Moving averages lag and oscillators can stay oversold/overbought for eons.

You will find improved moving averages that cut the lag. You will learn to find bullish divergences instead of just buying when the oscillator is in the oversold region.

However, none of these is the panacea and every indicator has its drawbacks. (Even those that cost $999/year.)