4 Technical Indicators I Use In My Trades

As a day trader, my charts are my lifeblood. I truly believe that a trader is only as good as his or her charts, and without mine, I’m simply not making money.

But what makes a good chart from a bad one? Very simple: the indicators you use. There’s hundreds of indicators out there, from volume indicators, to momentum indicators, to volatility indicators, with each meant to be used in different types of markets. And while the kinds of indicators you use will depend on the type of trader you are, it’s always a good idea to be on the lookout for new ones.

Here are some indicators that I like to use in my trading.

Relative Volume

Relative Volume (or RVOL) is a volume indicator, meaning it helps measure investor interest in a stock. RVOL compares a stock’s current volume to its prior volume over a specific period.

It’s expressed as a ratio. For example, if a stock has an RVOL of 5, it’s trading at five times its normal volume. Higher Relative Volume obviously indicates more traders are trading it.

I like RVOL because it lets me know what I should be keeping an eye on, because other traders also have their eye on it.

Bollinger Bands

Bollinger Bands are a popular type of volatility indicator. They essentially act like a buffer zone around a stock’s price, with the width of the zone representing how volatile it is.

The wider the Bollinger Bands, the more volatile a stock is, and vice versa. You also need to watch how close the price moves to the upper and lower ends of the band. I like stocks that have moved near the top because it indicates that it might be relatively cheap.

At Warrior Trading, we like using Bollinger Bands for reversals.

Relative Strength Index

For much of my day trading I use momentum trading strategies, which is why I like RSI so much. RSI is one of the most relied upon tools for momentum traders like me because it generally provides clear buy/sell signals over a set period of time. I like using RSI over a 14 trading day span.

RSI is measured on a scale from 0-100. Traditionally, any reading under 30 tells us that a stock is oversold, or undervalued, while above 70 tells us it’s overbought, or overvalued.

One of the biggest things to watch out for when using RSI is dramatic price movements, which can cause false signals. To combat this I’ll broaden the scope of RSI from 30-70 to 20-80.

The formula for RSI is:

RSI = 100-100/ (1+RS)

where RS is the average gain during up days in the date range in question divided by the average loss of down days during the range.

Fibonacci Retracement

Sometimes in my trading I like to take a step back and simplify things. What price levels are acting as resistance, and what levels are acting as support? To help me with this I use the Fibonacci Retracement.

Fibonacci Retracement levels use horizontal lines to highlight key areas of support and resistance, which give me an idea of potentially big inflection points. Once those lines are drawn between a peak and a trough, we measure the price across the key Fibonacci ratios of 23.6 percent, 38.2 percent, 50 percent, 61.8 percent and 100 percent. Personally I like the 61.8 percent level because it’s often the highest pullback area, where the last sellers will give up and buyers will pile into a stock.

Again, I want to stress that every trader is different and I don’t expect everyone to use these indicators like I do. Don’t feel like you have to use a particular indicator just because you see people writing about it. I’ve found it never hurts to try new indicators, but if something is not working for me for whatever reason (maybe it clutters my charts or I find myself ignoring it), I toss it aside.