2 Simple Indicators for Day Trading

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The Best Technical Indicators for Day-Trading

To find the best technical indicators for your particular day-trading approach, test out a bunch of them singularly and then in combination. You may end up sticking with, say, four that are evergreen or you may switch off depending on the asset you’re trading or the market conditions of the day.

Regardless of whether you’re day-trading stocks, forex, or futures, it’s often best to keep it simple when it comes to technical indicators. You may find you prefer looking at only a pair of indicators to suggest entry points and exit points. At most, use only one from each category of indicator to avoid unnecessary—and distracting—repetition.

Combining Day-Trading Indicators

Consider pairing up sets of two indicators on your price chart to help identify points to initiate and get out of a trade. For example, RSI and moving average convergence/divergence can be combined on the screen to suggest and reinforce a trading signal.

The relative strength index (RSI) can suggest overbought or oversold conditions by measuring the price momentum of an asset. The indicator was created by J. Welles Wilder Jr., who suggested the momentum reaching 30 (on a scale of zero to 100) was a sign of an asset being oversold—and so a buying opportunity—and a 70 percent level was a sign of an asset being overbought—and so a selling or short-selling opportunity. Constance Brown, CMT, refined the use of the index and said the oversold level in an upward-trending market was actually much higher than 30 and the overbought level in a downward-trending market was much lower than 70.

Using Wilder’s levels, the asset price can continue to trend higher for some time while the RSI is indicating overbought, and vice versa. For that reason, RSI is best followed only when its signal conforms to the price trend: For example, look for bearish momentum signals when the price trend is bearish and ignore those signals when the price trend is bullish.

To more easily recognize those price trends, you can use the moving average convergence/divergence (MACD) indicator. MACD consists of two chart lines. The MACD line is created by subtracting a 26-period exponential moving average (EMA) from a 12-period EMA. An EMA is the average price of an asset over a period of time only with the key difference that the most recent prices are given greater weighting than prices farther out.

The second line is the signal line and is a 9-period EMA. A bearish trend is signaled when the MACD line crosses below the signal line; a bullish trend is signaled when the MACD line crosses above the signal line.

Choosing Pairs

When selecting pairs, it’s a good idea to choose one indicator that’s considered a leading indicator (like RSI) and one that’s a lagging indicator (like MACD). Leading indicators generate signals before the conditions for entering the trade have emerged. Lagging indicators generate signals after those conditions have appeared, so they can act as confirmation of leading indicators and can prevent you from trading on false signals.

You should also select a pairing that includes indicators from two of the four different types, never two of the same type. The four types are trend (like MACD), momentum (like RSI), volatility, and volume. As their names suggest, volatility indicators are based on volatility in the asset’s price, and volume indicators are based on trading volumes of the asset. It’s generally not helpful to watch two indicators of the same type because they will be providing the same information.

Using Multiple Indicators

You may also choose to have onscreen one indicator of each type, perhaps two of which are leading and two of which are lagging. Multiple indicators can provide even more reinforcement of trading signals and can increase your chances of weeding out false signals.

Refining Indicators

Whatever indicators you chart, be sure to analyze them and take notes on their effectiveness over time. Ask yourself: What are an indicator’s drawbacks? Does it produce many false signals? Does it fail to signal, resulting in missed opportunities? Does it signal too early (more likely of a leading indicator) or too late (more likely of a lagging one)?

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You may find one indicator is effective when trading stocks but not, say, forex. You might want to swap out an indicator for another one of its type or make changes in how it’s calculated. Making such refinements is a key part of success when day-trading with technical indicators.

The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.

2 Simple Indicators for Day Trading

If you trade stocks or stock indices (or related products) here are two very simple indicators which will help you decide in which direction you should be trading.

Open Price Indicator: Current price – Open price

The Open Price Indicator (OPI) is a simple calculation that lets you know whether buyers or sellers are stronger during the day.

If the Current price is above the open price (positive OPI), the buyers have the advantage.

If the Current price is below the open price (negative OPI), the sellers have the advantage.

Ideally trade in the same direction as the OPI; if OPI is positive only take long positions when your entry signals occur. If the OPI is negative only take short signals when they appear.

The OPI acts as a filter. It lets you know in which direction you should be taking trades.

When the OPI flips from positive to negative, or negative to positive it can act as a trade signal. Buy when the OPI goes from negative to positive; sell (buy puts) when the OPI goes from positive to negative. Finding the exit will be up to you.

Net Price Indicator: Current price – Prior Close price

The Net Price Indicator (NPI) is another simple calculation which shows whether buyers or sellers are in control from one day to the next. The last closing price was the consensus price for traders yesterday. If the current price is above the prior close (positive NPI) it shows buyers are in control. If the current price is below the prior close (negative NPI) it shows sellers have stepped it up.

Ideally trade in the direction of the NPI; if NPI is positive only look for long positions; if the NPI is negative only look for short positions.

When the NPI flips from positive to negative, or negative to positive it can act as a trade signal. Buy when the NPI goes from negative to positive; sell (buy puts) when the NPI goes from positive to negative. Finding the exit will be up to you.

Combining the Indicators

The greatest confirmation comes when you are taking day trades in the direction of both OPI and NPI. When OPI and NPI are positive it shows that the buyers are strong and pushing the price up since the prior close and since todays open. When both these indicators are positive, your primary focus should be on finding long positions based on an established strategy.

When both the indicators are negative, your primary focus should be on finding short (put) positions based on an established strategy.

Except for when the indicators flip from positive to negative, or vice versa, these indicators are not trade signals. They simply tell you in which direction you should be trading.

When using the indicators for trade signals, look for confirmation. If the one indicator moves from positive to negative, indicating a sell, the signal is stronger if the other indicator is already negative or also crossing into negative territory. When an indicator crosses from negative to positive, indicating a buy, the signal is stronger if the other indicator is already positive or also crossing into positive territory.

The Final Word

NPI and OPI give you a quick assessment of how the price is performing compared to yesterday’s close and today’s open. They show you which side of the market is most favorable for extracting a profit–the long side or the short side. Finding an entry and exit, as well as controlling risk is up to you. The indicator does provide the occasional trade signal when one of the indicators flips from positive to negative, or vice versa. Ideally use the indicators in combination, as signals are more powerful when both indicators confirm each other.

Top Technical Indicators for Rookie Traders

Starting out in the trading game? Looking for the best technical indicators to follow the action is important. It affects how you’ll interpret trends—both on positions and in the broad averages—as well as the type of opportunities that pop up in your nightly research. Choose wisely and you’ve built a solid foundation for success in speculation. Choose poorly and predators will be lining up, ready to pick your pocket at every turn.

Most novices follow the herd when building their first trading screens, grabbing a stack of canned indicators and stuffing as many as possible under the price bars of their favorite securities. This “more is better” approach short circuits signal production because it looks at the market from too many angles at once. It’s ironic because indicators work best when they simplify the analysis, cutting through the noise and providing usable output on-trend, momentum, and timing.

Instead, take a different approach and break down the types of information you want to follow during the market day, week, or month. In truth, nearly all technical indicators fit into five categories of research. Each category can be further subdivided into leading or lagging. Leading indicators attempt to predict where the price is headed while lagging indicators offer a historical report of background conditions that resulted in the current price being where it is.

  1. Trend indicators (lagging) analyze whether a market is moving up, down, or sideways over time.
  2. Mean reversion indicators (lagging) measure how far a price swing will stretch before a counter impulse triggers a retracement.
  3. Relative strength indicators (leading) measure oscillations in buying and selling pressure.
  4. Momentum indicators (leading) evaluate the speed of price change over time.
  5. Volume indicators (leading or lagging) tally up trades and quantify whether bulls or bear are in control.

So, how can a beginner choose the right setting at the start and avoid months of ineffective signal production? The best approach in most cases is to begin with the most popular numbers while adjusting one indicator at a time and seeing if the output helps or hurts your performance. Using this method, you’ll quickly grasp the specific needs of your level.

Now that you understand the five ways that indicators dissect market action, let’s identify the best ones in each category for novice traders.

Key Takeaways

  • Technical indicators, by and large, fit into five categories – trend, mean reversion, relative strength, volume, and momentum.
  • Leading indicators attempt to predict where the price is headed while lagging indicators offer a historical report of background conditions that resulted in the current price being where it is.
  • Popular technical indicators include SMAs, EMAs, bollinger bands, stochastics, MACD, and on-balance volume.

Trend: 50 and 200-day EMA

We’ll start with two indicators that are embedded within the same panel as the daily, weekly, or intraday price bars. Moving averages look back at price action over specific time periods, subdividing the total to create a running average that’s updated with each new bar. The 50- and 200-day exponential moving averages (EMAs) are more responsive versions of their better-known cousins, simple moving averages (SMAs). In a nutshell, the 50-day EMA is used to measure the average intermediate price of a security, while the 200-day EMA measures the average long term price.

US Oil Fund (USO)’s 50- and 200-day EMAs rose steadily into the summer of 2020, while the instrument pushed up to a 9-month high. The 50-day EMA turned lower in August, with the 200-day EMA following suit one month later. The shorter-term average then crossed over the longer-term average (indicated by the red circle), signifying a bearish change in trend that preceded a historic breakdown.

Mean Reversion: Bollinger Bands (20,2)

USO buying and selling impulses stretch into seemingly hidden levels that force counter waves or retracements to set into motion. Bollinger bands (20,2) try to identify these turning points by measuring how far price can travel from a central tendency pivot, the 20-day SMA in this case, before triggering a reversionary impulse move back to the mean. The bands also contract and expand in reaction to volatility fluctuations, showing observant traders when this hidden force is no longer an obstacle to rapid price movement.

Relative Strength: Stochastics (14,7,3)

Market movement evolves through buy-and-sell cycles that can be identified through stochastics (14,7,3) and other relative strength indicators. These cycles often reach a peak at overbought or oversold levels and then shift in the opposite direction, with the two indicator lines crossing over. Cycle alternations don’t automatically translate into higher or lower security prices as you might expect. Rather, bullish or bearish turns signify periods in which buyers or sellers are in control of the ticker tape. It still takes volume, momentum, and other market forces to generate price change.

SPDR S&P Trust (SPY) oscillates through a series of buy-and-sell cycles over a 5-month period. Look for signals where:

  1. a crossover has occurred at or near an overbought or oversold level
  2. indicator lines then thrust toward the center of the panel.

This two-tiered confirmation is necessary because stochastics can oscillate near extreme levels for long periods in strongly trending markets. And, while 14,7,3 is a perfect setting for novice traders, consider experimenting to find the setting that best fits the instrument you are analyzing. For example, experienced traders switch to faster 5,3,3 inputs.

Momentum: MACD (12.26.9)

Moving average convergence divergence (MACD) indicator, set at 12,26,9, gives novice traders a powerful tool to examine rapid price change. This classic momentum tool measures how fast a particular market is moving, while it attempts to pinpoint natural turning points. Buy or sell signals go off when the histogram reaches a peak and reverses course to pierce through the zero line. The height or depth of the histogram, as well as the speed of change, all interact to generate a variety of useful market data.

SPY shows four notable MACD signals over a 5-month period. The first signal flags waning momentum, while the second captures a directional thrust that unfolds right after the signal goes off. The third signal looks like a false reading but accurately predicts the end of the February–March buying impulse. The fourth triggers a whipsaw that’s evident when the histogram fails to penetrate the zero line.

Volume: On-Balance-Volume (OBV)

Keep volume histograms under your price bars to examine current levels of interest in a particular security or market. The slope of participation over time reveals new trends, often before price patterns complete breakouts or breakdowns. You can also place a 50-day average of volume across the indicator to see how the current session compares with historic activity.

Now add on-balance volume (OBV), an accumulation-distribution indicator, to complete your snapshot of transaction flow. The indicator adds up buying and selling activity, establishing whether bulls or bears are winning the battle for higher or lower prices. You can draw trendlines on OBV, as well as track the sequence of highs and lows. It works extremely well as a convergence-divergence tool, as Bank of America (BAC) proves between January and April when prices hit a higher high while OBV hit a lower high, signaling a bearish divergence preceding a steep decline.

The Bottom Line

Choosing the right technical indicators is daunting but can be managed if novice traders focus the effects into five categories of market research: trend, mean reversion, relative strength, momentum, and volume. Once they’ve added effective indicators for each category, they can begin the long but satisfying process of tweaking inputs to match their trading styles and risk tolerance.

Day Trading Indicators To Simplify Your Trading

Last updated on November 7th, 2020

Day trading indicators are a useful trading tool that should be used in conjunction with a well-rounded trading plan but are not and should not be the plan itself.

In this trading article, I want to cover 3 best trading indicators for day trading that I find very useful in trading.

You will also learn how to see momentum on the chart and have a general area where you will look for trading setups.

These indicators are useful for any style of trading including swing and position trading.

Day Trading Indicators Give Information About Price and Volume

Almost every charting platform comes with a host of indicators that those who engage in technical trading may find useful. You simply apply any of them to your chart and a mathematical calculation takes place taking into the past price, current price and depending on the market, volume.

Different types of technical indicators do different things:

  • Trend direction
  • Momentum or the lack of momentum in the market
  • Volatility for profit potential – Is the market really moving?
  • Volume to see how popular the market is with other traders

The issue now becomes using the same types of indicators on the chart which basically gives you the same information.

While this may be explained as looking for “trade confirmation“, what it really does is give you conflicting information as well as more information to process.

A simple example is having several trend indicators that show you the short term, medium-term, and longer-term trends. From a multiple time frame perspective, this may appear logical.

Many traders though can attest to seeing a perfectly valid setup negated because of a trend conflict and then watching the trade play itself out to profit.

Looking at this chart, the evolution of price and the lag of the moving average indicators can give day traders conflicting signals

  1. Price below longer-term average means short
  2. Price above medium-term means long
  3. Price above short term means long

The blue lines indicate day trading opportunities that would either be skipped or have you on the wrong side of the market if you relied on the trading indicators for your decision-making process.

The bottom example shows a consolidation with higher lows and momentum breaking to the upside. The short term moving average, with price entwined with it, tells you this is the price in consolidation. The longer-term moving averages have you looking for shorts.

Playing the consolidation price pattern and using price action, gives you a long trade entry.

The main drawback with most trading indicators is that since they are derived from price, they will lag price.

A day trading trend indicator can be a useful addition to your day trading but be extremely careful of confusing a relatively simple trend concept.

Day Trading Indicator Selection

Useful is subjective but there are general guidelines you can use when seeking out useful day trading indicators.

One simple guideline:

  • Choose one trend indicator such as a moving average and
  • Choose one momentum trading indicator such as the stochastic oscillator or RSI.

You must know what edge you are trying to exploit before deciding on which trading indicators to use on your charts. To add to that, you must also know how the indicator works, what calculations it does and what that means in terms of your trading decision.

For example, the idea that moving averages actually provide support and resistance is really a myth.

Looking again at the chart above, when the moving average connects with price, what you are seeing is the average price not being as large as recent history and the moving average simply catches up to price.

Do Trading Indicators Work?

It all depends on how they are put together in the context of a trading plan. Some of the most used technical indicators such as moving averages, MACD, and CCI work in the sense that they do their job in calculating information.

For example, using several moving averages together like the alligator indicator can quickly show you a market that is not only ranging but also trending.

A golden cross or it’s cousin, the death cross, can show you trend direction and even act as trade entry and exit signals

The power of the indicator lies in how you interpret the information as part of an overall trade plan.

Don’t be sold on the “holy grail” indicator that marketers flood your inbox with. Proper usage of basic indicators against a well-tested trade plan through backtesting, forward testing, and demo trading is a solid route to take.

All of the systems that are offered by Netpicks not only come with tested trade plans but also hammer home that you must prove any trading system or trading indicator to yourself.

Threat Of Over-Optimization

There is a downside when searching for day trading indicators that work for your style of trading and your plan.

Many systems that are sold use standard indicators that have been fine-tuned to give the best results on past data. They package it up and then sell it without taking into account changes in market behavior.

The backbone of many trading systems is very mechanical in the sense that “if A happens, do B”.

There is nothing wrong with optimizing to take into account current market realities but your approach and mindset in doing so can either have you being realistic or over-optimizing out of the realm of reality.

One way you may choose to not fall into the over-optimizing trap is to simply use the standard settings for all trading indicators. This ensures you are not zeroing in on the most effective setting for the market of today without regard for tomorrow.

What Time Frame Is Best For Day Trading?

The best time frame of 5-15 minute charts for trading is what is popular with traders. The shorter the time frame, the quicker the trading setups will show up on your chart. Best is subjective and will depend on your trading strategy and available time to day trade.

Is There A Best Intraday Indicator Setting?

There is no best indicator setting and the setting you use will determine how sensitive the trading indicator is to price movement. A longer lookback period will smooth out erratic price behavior. A short look back period will be more sensitive to price.

Notice what happens when I change the RSI indicator on a 5-minute chart from a 20 period to a 5 period faster setting on the graphic above.

Best Technical Indicators For Day Traders

The best technical indicators that I have used and are popular amongst other traders are:

  1. RSI – Relative strength index is one of the best momentum indicators for intraday trading
  2. Moving averages – Can help a trader determine the trend, overextended markets and are often used as dynamic support and resistance
  3. Channels – From Donchian Channels to trend line channels, these can help a trader see a change in the rhythm of the market.

Let’s take a look at 3 trading indicators and how they can apply to your own trading.

Intraday Trading – RSI

What I want you to take notice of is when the breaks either the 70 level or the 30 levels. This is not to take a reversal trade-in “overbought” or “oversold” territory. Markets have a way of staying in those conditions long after a trading indicator calls the condition.

20 Period Moving Average

The moving average is not for trend direction. What I want you to note is how far price moves away from the indicator, hugs the indicator, or “bounces” from the indicator

Trading Channels

Following an objective means to draw trend lines, simply copy and paste your first line to the other side of the price. Markets move in rhythm and anything outside of that rhythm will cause a break of a trend line. That can indicate that “something new” is coming to the market and we could be seeing a trading opportunity.

How To Use These Indicators For Day Trading

I will first tell you how NOT to use these 3 trading indicators. They will not be your ultimate decision-making tool whether or not to enter a trade. For that, let price action dictate and you may find this free Candlestick Reversal PDF useful in putting a trading plan together.

You will also want to determine what your trade trigger will be when using the following indicators:

  • RSI will be used to show strong momentum. If price breaks either the 70 or 30 levels, we will be on alert for a trading setup in the same direction as the break
  • The moving average will be used for a general area-wide zone – where we will look for price to resume after a pullback.
  • The channels can be used for trade direction, signify a change of trend, and depending on the size of channel, used in the same manner as the RSI indicator
  1. RSI is oversold which lets us trade short. Price is far from the upper line and moving average. All we get are entries via breaks of consolidations.
  2. Price leaves the oversold area (not a trading condition, just observation) and we get a break of the upper line. Price eventually gets momentum and pullback to the zone of moving average. We are on alert for shorts but consolidation breaks to the upside. This is a trade you could position for due to the “something new” – break of channel and momentum in price
  3. RSI hit 70. Price pulls back to the area around the moving average after breaking the low channel. After breakouts – generally, see retests and we are looking for longs due to price trend. Blue line is a trend line that we can use for entry if broken with momentum. Price breaks back upside with momentum.
  4. 70 RSI and pullback. Break to upside
  5. Price has broken longer-term channel and formed a down sloping channel. RSI had hit 70 and we are still looking for upside. Price breaks channel, consolidation and upside momentum

You can see that we can see that any trading decision is made from price action. The indicators frame the market so we have some structure to work with.

  • We were using the RSI indicator to show us a market that has momentum
  • We were using the moving average as a general location for some trades
  • We used the trading channels for trend, monitor breaks for momentum and can use the breakout – pullback sequence to a position in a trade

Does The Choice Of Trading Indicators Change?

As you can see, this list gives 3 trading indicators you can use in a manner that still allows price action to determine your trading.

You may eventually stop using the RSI and simply measure momentum by how far price is from the moving average.

The moving average may disappear from your charts and you will use the tops and bottoms of the channels as general zones for the price to react at.

Every trader will find something that speaks to them which will allow them to find a particular technical trading indicator useful.

Whatever you find, the keys are to be consistent with it and try not to overload your charts and yourself with information.

Simple is usually best:

Determine trend – Determine setup – Determine trigger -Manage risk

Ever wondered how to use technical indicators in trading? Well wonder no more, this article introduces 7 popular indicators, and the strategies you can use to profit from their signals.

Technical trading involves reviewing charts and making decisions based on patterns and indicators.

These patterns are particular shapes that candlesticks form on a chart, and can give you information about where the price is likely to go next.

Indicators are additions or overlays on the chart that provide extra information through mathematical calculations on price and volume. They also tell you where the price is likely to go next.

There are 4 major types of indicator:

Trend indicators tell you which direction the market is moving in, if there is a trend at all. They’re sometimes called oscillators, because they tend to move between high and low values like a wave. Trend indicators we’ll discuss include Parabolic SAR, parts of the Ichimoku Kinko Hyo, and Moving Average Convergence Divergence (MACD).

Momentum indicators tell you how strong the trend is and can also tell you if a reversal is going to occur. They can be useful for picking out price tops and bottoms. Momentum indicators include Relative Strength Index (RSI), Stochastic, Average Directional Index (ADX), and Ichimoku Kinko Hyo.

Volume indicators tell you how volume is changing over time, how many units of bitcoin are being bought and sold over time. This is useful because when the price changes, the volume gives an indication of how strong the move is. Bullish moves on high volume are more likely to be maintained than those on low volume.

We won’t cover volume indicators here, but this class includes On-Balance Volume, Chaikin Money Flow, and Klinger Volume Oscillator.

Volatility indicators tell you how much the price is changing in a given period. Volatility is a very important part of the market, and without it there’s no way to make money! The price has to move for you to make a profit, right?

The higher the volatility is, the faster a price is changing. It tells you nothing about direction, just the range of prices.

Low volatility indicates small price moves, high volatility indicates big price moves. High volatility also suggests that there are price inefficiencies in the market, and traders spell “inefficiency”, P-R-O-F-I-T. We’ll cover 1 volatility indicator today, Bollinger Bands.

So why are indicators so important? Well, they give you an idea of where the price might go next in a given market. At the end of the day, this is what we want to know as traders. Where is the price going to go? So we can position ourselves to take advantage of the move and make money!

As a trader, it’s your job to understand where the market might go, and be prepared for any eventuality. You don’t need to know exactly where the market is going to go, but understand the different possibilities, and be positioned for whichever one materializes.

Remember, traders make money in bull AND bear markets. We take advantage of long AND short positions. Don’t get too attached to the direction of the market, as long as the price is moving you can profit. Indicators will help you to do this.

Without further ado, here are the stars of the show.

1) Bollinger Bands

Bollinger bands are a volatility indicator. They consist of a simple moving average, and 2 lines plotted at 2 standard deviations on either side of the central moving average line. The outer lines make up the band.

Simply, when the band is narrow the market is quiet. When the band is wide the market is loud.

You can use Bollinger Bands to trade in both ranging and trending markets.

In a ranging market, look out for the Bollinger Bounce. The price tends to bounce from one side of the band to the other, always returning to the moving average. You can think of this like regression to the mean. The price naturally returns to the average as time passes.

In this situation, the bands act as dynamic support and resistance levels. If the price hits the top of the band, then place a sell order with a stop loss just above the band to protect against a break out. The price should revert back down towards the average, and maybe even to the bottom band, where you could take profits. Check out the screenshot below.

When the market is trending, you can use the Bollinger Squeeze to time your trade entry and catch breakouts early on. When the bands get closer together (i.e. they squeeze), it indicates that a breakout is about to happen. It doesn’t tell you anything about direction so be prepared for the price to go either way.

If the candles breakout below the bottom band, the move will generally continue in a downtrend.

If the candles breakout above the top band, the move will generally continue in an uptrend. Take a look at the screenshot below.

In summary, look out for the Bollinger Bounce in ranging markets, the price will tend to return to the mean. In trending markets, use the Bollinger Squeeze. It doesn’t tell you which way the price is going to go, just that it’s going to go.

2) Ichimoku Kinko Hyo (AKA Ichimoku Cloud)

Ichimoku Kinko Hyo (AKA Ichimoku Cloud) is a collection of lines plotted on the chart. It’s an indicator that measures future price momentum, and determines areas of future support and resistance. At first glance this looks like a very complex indicator, so here’s a breakdown of what the different lines mean:

  • Kijun Sen (blue line): Also called standard line or base line, this is calculated by averaging the highest high and the lowest low for the past 26 periods
  • Tenkan Sen (red line): The turning line. It’s derived by averaging the highest high and the lowest low for the past nine periods
  • Chikou Span (green line): Also called the lagging line. It’s today’s closing price plotted 26 periods behind
  • Senkou Span (red/green band): The first Senkou line is calculated by averaging the Tenkan Sen and the Kijun Sen and plotted 26 periods ahead. The second Senkou line is calculated by averaging the highest high and the lowest low over the past 52 periods, and plotting it 26 periods ahead

So how can you translate these lines into trading profits? I’m glad you asked.

The Senkou span acts as dynamic support and resistance levels. If the price is above the Senkou span, the top line acts as first support, and the bottom line as second support.

If the prices below the Senkou span, the bottom line acts as the first resistance, and the top line as the second resistance. Simple as that!

The Kijun Sen (blue line) can be used to confirm trends. If the price breakouts above the Kijun Sen, it’s likely to rise further. Conversely, if the price drops below this line, then it’s likely it’ll go lower.

The Tenkan Sen (red line) can also be used to confirm trends. If the line is moving up or down, it indicates the market is trending. And if it’s moving sideways, then the market is ranging.

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