Best Technical Indicators For Day Trading

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Best Technical Indicators For Day Trading using Bollinger Bands and MACD Indicators

There are hundreds of what claim to be the best technical indicators for Day Trading and swing trading. In this post, we’ll be discussing how to use Bollinger Bands and MACD Indicators in combination to help you in trading whether on stocks, futures, ETFs, etc.

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Best Technical Indicators For Day Trading

Indicators for day trading are a dime a dozen, we’ve all seen a million of them. And today I’m going to show you something that by the way also would apply for swing trading and, um, even long term treating frankly, if you put this on a monthly, weekly charts, you could do this for some real long-term trading and even investing, but today we’re going to show it to you on day trading examples and the indicators that we’re going to be using are the MACD and the Bollinger bands. These are some of the best technical indicators for day trading is that we’re going to use them in combination with each other. So it’s going to be an indicator of an indicator. Now, what did Barry mean by an indicator of an indicator? Good question.

So, normally, when we are using Bollinger bands, were using them on the price bars. And that’s fine. I like to do that too. However, what we’ll do today is we’re going to look at MACD and by the way, the MACD settings that I’m using here is the standard 26, 12 and 9, and that’s what these red little Dots are. I put a plot of them as dots just so that I could see them very clearly, they would really stand out over against the lines of the Bollinger bands. Anyway, you can customize that however you want, but we are creating here instead of Bollinger bands of price, we’re creating Bollinger bands of the MACD indicator and the Bollinger bands are set again at the standard setting, which is generally two standard deviations of a 20 period moving average.

Best Combination of Indicators for Day Trading

Okay, so it didn’t really change any of these settings on the indicators, although we can play around that without if you want to as well. We’re creating a Bollinger band of the MACD instead of a Bollinger band of price action. How do we apply that? So here are the kinds of setups that I look for and give you a couple of examples on how to use these best technical indicators. First thing I will say is, since we’re talking about day trading today, and this is a three minute short, by the way, it doesn’t really mean it does matter, but, the first thing I want to tell you is that since we’re day trading early in the morning like this, I find that these signals are not necessarily as reliable. So I don’t take that first impulse move generally but I’m not going to tape because it normally doesn’t follow through.

It’s just sometimes they do, sometimes they don’t, but we’re trading probabilities and they find that most time it doesn’t. Therefore, I’m waiting for the next move. Now, what am I waiting for? I’m waiting for the typical kind of boundary band squeeze pattern where the upper and Bollinger bands squeeze together, right? They come close together just like that. And then the MACD hits the upper or lower level and I’m looking for that to then go long because we’re looking at this as a low volatility on MACD, and then we want it to start expanding and go to a high volatility. If it hits the upper one, we go long, if it hits the lower one, we go short and as you can see, sure enough, nice impulse move there. Got It. Nailed it. Now another thing to look for.

Day Trading Indicators Patterns

That’s the basic signal. First of all, that’s the basic signal. Now, the secondary signal you want to look at is, for example, here, we put in a high and look what happened, high on price, but look at a MACD, it pulls away from the Bollinger bands, right? Stops riding them. I call this riding the Bollinger bands. And then it lets loose of them. So that’s a nice indication of, that’s a high probability high and you get kind of the same thing down here, except we didn’t get an entry into that move, but here you might think maybe I should go along, maybe I should go short, but no, because the MACD doesn’t touch the lower Bollinger band. That is essentially telling us that the market is not making any strong impulse move to the downside and, therefore, not really going to be a great trade.

And again that proved to be very true or could just kind of go sideways after that. Plus we don’t get the Bollinger bands to squeeze there. So let’s move forward here a little bit and again. What happens? We get these same patterns. Bollinger bands squeeze there, right? You gotta wait a little while. So the first time when we get this, you might say, well, but it hits the lower Bollinger band here. Yes, it does, but we don’t want to go short. Why? Because the squeeze is still just starting. So we want to take the trade out of the squeeze, not at the beginning of the squeeze, so we wait for it to get in there and then we for forward to start expanding and what you want to see are the Bollinger band starting to separate to part.

Best Technical Indicators for Day Trading Stocks

So, when the lower goes down, the upper goes up, and then whichever one it hits, that’s the one that we’re looking for and momentum, remember MACD is, essentially, well traditionally it’s called a momentum indicator, but it’s really more of an acceleration or velocity indicator. But yes, we get a nice impulse move there and we are golden. So the type of trade, this actually is a volatility trade, but instead of using the Bollinger bands on price, we’re using it on a momentum indicator and it can sometimes give you different signals. Now, let me show you a couple more examples because I want to keep you out of trouble. It’s very important to learn the details of this. So we got it here. We went long and notice the same pattern, we put in a high. What happens is the MACD pulls away from the Bolinger band.

Then we come back here. Now again, you might say, wait a minute. If the upper Bollinger band, I should go along. No. Why? Well, we already told you because the Bollinger band is squeezing together. The upper and lower bands are moving toward each other, so we don’t want that. Same thing here, they’re really just still kind of going sideways. And then now here it does go up toward the end of the day. In fact, that is the end of the day. We do get a little bit of an up move at the end of the day. One last example for you just to bring home the lesson. So again, beginning of the day, right? That’s this horizontal line is the beginning of the day. Just to be clear, by the way, these are California times down here. So again, we get the impulse move down.

Day Trading Rules

We do hit the lower Bollinger band, one of the best technical indicators. A couple of problems, number one, our rule is that first, impulse move at the beginning of the day, normally not good. Number two, it does touch the lower Bollinger band, but look, we’re not in the squeeze, right? We don’t have the squeeze first, so it’s disqualified on two counts. Now, here we do have the squeeze but we don’t want to take it right away because the squeeze is just starting. So the two Bollinger bands are coming together. We wait until they start parting and we get a little bit of a down move there. Now watch this, it comes back up, does not touch the upper Bollinger band, it comes up, comes back down, and it does make another impulse move down, right? The squeeze happens, look at this. If you could see this, that moves up.

This one moves down, talking about the Bollinger bands. After which, this goes sideways for a little while. Then this is a point here where the Bollinger bands are clearly moving in opposite directions. They’re spreading apart, we got a momentum move, and we’re golden. So sure enough, again, one last thing, just to reiterate, we get a nice divergence there, it’s not really a divergence, but just MACD pulling away from the Bollinger band which means it’s slowing down. And then we wait for a nice candlestick pattern, we wait for resistance seeing that’s what you’re looking for, the confluence of time and price. We’ve got resistance, we got momentum slowing down slightly when resistance is going to hold – when momentum slows down because price tends to go through resistance when it’s moving on strength and it tends to bounce off of resistance when it’s moving up on weakness.

Rubber Band Trade Strategy

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BTW, if you’re interested in the indicator that I use personally for very precise entries and exits. I’m happy to share that with you. Just send me an email at Barry@TopDogTrading.com, and I’ll show you how to get access to that indicator.

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