In this article, I’ll share my top THREE indicators for day trading Forex (or any other market). These three indicators are very useful, especially for day trading, due to their nature and how they behave. The nature of these indicators provides excellent trading opportunities in day trading. The three indicators are as follows –
Pivot is a mathematical indicator based on pure data of open price, close price, high, and low of the 4 hours, daily or weekly chart (or other periods). This represents the maximal and minimal points the buyers and sellers can reach. A mathematical formula is applied to these data and creates for us Pivot Levels.
What are the pivot levels?
A pivot point indicator is developed by the traders (mainly) in the financial markets to help them find and spot potential turning points where the price is anticipated to react from and to help them to trade CFDs on Forex, Indices, Commodities and other financial markets. Day traders use pivot points to determine potential levels of support and resistance and levels they expect the market to bounce off, and therefore possible turning points from a bullish to a bearish direction or vice versa.
Basic Pivot Point Formula – The formula for calculating the primary pivot point (using the previous day’s prices): Pivot point = (High+Low+Close) \ 3
The indicator shown in the image below is the combination of Bollinger Bands and Pivot points. This is one of my trading systems called Forex Triple B. As you can see in the image below, we have a green Bollinger Band, which represents the uptrend, and you can see how powerful the Pivot Levels will be in your data in spotting the reversal points. I love combining several pivot levels as a strong support or resistance. As you can see in the image below, we have a very powerful support area with a combination of weekly and daily pivot levels, and the price managed to bounce from this level.
Well, I can’t predict where the price is heading after the bounce, but when the price bounces to the upside, I anticipate that price will go back to the bullish trend, which means I expect the market to create higher highs and higher lows. And you can see clearly that the market has created higher highs and higher lows after bouncing from the pivot levels. This is a clear sign that the buyers are taking control. Next, I want the price to bounce lower toward the next supportive area (which, in most cases, would be daily pivot levels). The price moved lower and bounced off from the area where we have the daily pivot levels and Bollinger Band, then it moved higher and broke above the previous swing highs. From my point of view, this is a sign of a potential continuation higher, with a high probability. Then the price moved lower, reached the area where we have the new daily pivot levels and Bollinger Band, and it provided us with several buy opportunities.
This is why in trending conditions when we combine two pivot levels (For example, weekly with daily or two different periods like today and yesterday or two days ago), it will create a trading box. This trading box provides excellent trading opportunities, and I love to combine that in trending conditions (higher highs and higher lows in an uptrend and lower highs and lower lows in a downtrend). Also, the power of the Pivot Levels is to provide the next potential target levels, which are the following Pivot Levels in the trending direction.
You can watch my video about Pivot Levels here
The next indicator is the MACD, one of my favourite indicators, which stands for Moving Average Convergence Divergence and is famous for its various uses like spotting divergences, confirming trends, finding convergences, verifying swing highs and lows and much more. For me, it is one of the most complete indicators that every trader needs in his/her arsenal.
Even though I am a big fan of divergence, I would like you to give an example of how to join and ride the trend in an opposite way using the MACD indicator.
One of the ways I love checking with the MACD indicator is the multi-timeframe momentum (positive or negative) by checking both the moving averages of the MACD to be above or below the zero line on the three following timeframes.
In the below example, let’s take the three following timeframes in Gold (4 hours, 1 hour and 15 minutes).
Gold H4 chart
On the H4 chart, you can see both the moving averages of the MACD indicator are bullish.
Gold H1 chart
Looking at the H1 chart, we can see that both the moving averages of the MACD indicator are already bullish here as well.
Gold M15 chart
On the M15 chart, the first thing that I wanted to see is the bullish trending structure in the form of higher highs and higher lows because I believe the indicator’s job is to indicate, but must be there to dictate the direction. So here we have the bullish trending structure, and I wanted to see the pullbacks, and after that, I want the MACD to go and cross up again, which exactly happened, as you can see in the image below.
I love this combination because, in trending conditions, you verify the price moving in a specific direction, and it is verified by the moving averages of the MACD indicator on two higher timeframes. From my point of view, this is a beautiful way to trade on instruments with multi-timeframe synchronization.
You can watch my MACD tutorial and trading guide here
You can download my MACD indicator for MT4/MT5 here
VOLUME PROFILE INDICATOR (Key Trading Levels Indicator – KTLI)
The next indicator is the volume profile which helps us spot excellent levels based on pure volume profile (where a lot of real market transactions went through) and help us understand where the actual market interest levels are. This indicator is commonly used to find balance and imbalance levels and to help us find trading opportunities based on that.
From my point of view, this indicator is very important because it provides you with key levels based on volumes. I also added a very specific thing here in this indicator: the multi-timeframe control (the table on the left bottom), which you can see in the image below.
For example, if I work on the M15 timeframe, I would like to see the key levels of one or two timeframes higher. That is 1-hour or 4-hour levels in this case. So as I mentioned before, first of all, I wanted to see trending conditions, and we have a bullish trend structure here. Once I have the trend, I want the price to bounce back to retest the levels. Also, we have the histogram of the current timeframe on the same leveL and I wanted the price to retest it. If that happens, I assume that if the price manages to hold and bounces back, then this would be a fantastic opportunity to join the ongoing trend and ride up to the next key volume levels.
You can watch my video on How To Trade With Volume Profile Indicator here
You can download my key trading levels indicator based on volume profile here
So, traders, I hope I have explained why these three are the MUST-HAVE indicators for day trading. The great part here is that these three indicators can be combined with any trading strategy that you use.
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Yours to your success,
Internationally Certified Financial Technician