Best Indicators for Day Trading Futures

A Digital Blogger | | Derivatives | No Comments

More on Derivatives

When it comes to the stock market, a lot of work revolves around analyzing charts, indicators, and patterns. These help in making significant decisions. Amidst all the indicators, let us find out the best indicators for day trading futures.

Short-term trading, including futures trading, if not done with the right guidance, can get a little overwhelming at times. The indicators can very well solve all the problems related to this.

Using the right indicators in the right situations can help you win the market and product better gains.

Before beginning the discussion about indicators and which one you should use, let us first understand future trading.

When a futures contract is bought and sold simultaneously, it is the day trading futures. The contracts are not held overnight, and therefore, there are no risks to the investor’s peace of mind during the night.

Since the trades are happening every day, there is also a chance to earn more profits. A futures contract is traded at a particular date and time that is decided beforehand. All the positions in a day trading futures are closed on the same day.

Now, let’s jump to the main point, i.e., what are the best indicators for day trading futures?

Also Read: Best Indicators for Positional Trading

Best Technical Indicators for Futures Trading

Many traders use technical analysis and indicators to make the best out of their trade. They analyze the trends, charts, and everything else that can be useful in bettering the trade.

When entering the stock market with an objective to do futures trading, then you do not have to be an expert. In fact, the right historical information and stock analysis can help you in making a trade decision.

Thinking, how you can make the right decision around futures trading?

Well! the best way is to do the technical analysis. The technical analysis of an asset is the combination of charting strategies and different indicators.

However, there are many technical indicators, but the two broad classifications of indicators for futures trading are:

Leading
Lagging

Leading Indicators for Futures Trading

Leading indicators are the ones that give the signal just before the market is on the edge of starting. These are the futuristic predictions made for the growth of the stock market.

Using the leading indicators, you can assume the results that will be put forth to the public in a few days. However, it is essential to note that the predictions made are not always accurate, and there can be some glitches.

Let us understand leading indicators with the help of an example. Imagine you own a business, and that business is a car.

Now, the leading indicators will look through the windshield and focus on the road further. Similarly, the leading indicators focus on the future.

Lagging Indicators for Futures Trading

Whereas the ones that indicate once the market has begun and confirms it is called lagging indicators. They are not the predictors but rather the ones that confirm the status or the long-term trends.

These come in handy when the small changes or mistakes go unnoticed by the leading indicators. This happens because the leading indicators are volatile.

When we talk of trading indicators, we generally talk about the four categories, namely trend indicators, momentum, volatility, and volume.

Trend indicators usually talk about the direction and the strength of the movement of price.
Momentum indicators usually tell us about the rate at which the prices of the stocks are changing.
Volatility is also the indication of the price, but here, in this case, it is directionless.
Volume indicators check the strength of an ongoing or particular trend and also give confirmation regarding its direction.

There are times when traders prefer using different indicators all at once. In such cases, the indicators should complement each other rather than become a hurdle in the way.

You can do the proper analysis of leading and lagging trends using different common indicators like moving averages, Fibonacci retracements etc.

Below is the detail of each type.

Moving Averages

As a trader, you must have faced difficulty when the data prices are not smooth. If you are also facing a problem in spotting the trends, then moving averages is a perfect catch.

The change in moving averages is a common thing. In cases where any new data is added, the old one is immediately removed. The reason for this is the responsibility of keeping the number of data in the average, always constant.

Moving averages is a popular and most commonly used indicator in the day trading futures.

Let us understand the moving averages with the help of an example. Consider the closing price of a stock ‘X’ for three days in the table below.


Days	Closing Price
Day 1	200
Day 2	400
Day 3	600

Let us now take the average closing price of these three dates is 200+400+600/3. This is equal to 400.

The stock moves a day further, and now the average closing price will be on the second, third and fourth day.


Days	Closing Price
Day 2	400
Day 3	600
Day 4	800

So, now the average closing price is 400+600+800/3. The product is now equal to 600.

After the average is calculated, it is joined to form a smooth curve. This is known as the moving average line.

The investors can use the moving averages for both short-term as well as long-term. The most common strategy used by investors is the crossover strategy. Now, you must be wondering what crossover strategy is?

In the crossover strategy, the traders collide a short-term moving average with a longer one. For example, a 20 days MA with a 60 days MA. The deductions, in such cases, are made by looking at the points where the lines intersect.

The moving averages are further classified into various other parts. Some of the most common types of moving averages are as follows.


Type	Definition
Simple Moving Average	The simplest of all. SMA is calculated over a predetermined period. It can be used in the calculation of its own moving average and of others as well.
Exponential Moving Average	The average puts more weight on the latest prices. The average here creates a more responsive movement (short-term). This then helps the trader to recognize the particular trend more quickly than the SMA.
Triangular Moving Average	The average of all the values of SMA creates the TMA. This makes an indicator that it is very late to react to new information.

These are some of the moving averages that an investor uses in the stock market.

Fibonacci Retracements

Fibonacci retracements are common technical analyses used by a large number of technical traders. The Fibonacci retracements are used when you are dealing with more volatile stocks.

You can identify resistance, draw support lines, and also set target prices using Fibonacci Retracements. When using the Fibonacci Retracements, it is common to measure the distance between the highest and the lowest price.

The traders usually begin with the Fibonacci Retracements and then continue with combining it with other analyses.

Parabolic Stop and Reverse

The parabolic stop, as the name indicates, creates a parabolic curve. The curve moves either upwards or downwards your price, according to its movement in the stock market. An investor places the dots which form the parabolic curve. Obviously, the positioning of the dots changes even with the slightest change in the trend.

For a better understanding, let us understand it this way. Suppose the PSAR is placed right above your price and then moves below.

This shows that the stock has a bullish movement. Now, this may seem like a perfect buying opportunity for some investors.

Similarly, in the case where the dots are starting from below your price and then moving upwards, the indication is of a bearish movement. In this case, the opportunity is to sell.

The Parabolic Stop and Reverse indicator is not the best to be used at the beginning of a trend.

Various indicators are available in the stock market that can help you study the trends. As an investor, you can choose the ones that you like. Given below are some of the popular indicators that an investor can use.

Relative Strength Index (RSI) is handy when you want to figure out the overbought and oversold stocks.
If you want to focus on the trading value and the changes it undergoes, you can use On Balance Volume (OBV).
It is also possible to study the momentum and the direction of overbought and oversold stocks. This can be achieved using the stochastic oscillator.

RSI, OBV, and the Stochastic Oscillator are the popular indicators that can help the investor identify the right trends in the market.

Conclusion

With advancements in technology, the stock market has also introduced various tools to help investors’ lives a lot easier.

The analysis of market trends helps investors move in the right direction and grab the perfect opportunity to buy and sell the stocks.

Wherein the analysis can get a little overwhelming in the case of day trading futures, various tools are available for assistance.

The various indicators used in the day trading futures are moving averages, Fibonacci retracements, and parabolic stop and reverse. There are different parameters on which these all differ from each other.

Therefore, it becomes essential for the futures trader to choose the right indicator according to the needs. They should avoid crowding themselves with a plethora of options as that will lead to more confusion.

These indicators analyze and predict the trends in the market. The selling and buying opportunities can be discovered using this. Although, you should keep in mind that you should not solely depend on these indicators.

The changing everyday market can give rise to changing trends. It is essential to work accordingly on the indicators as well.

Wish to start trading in the Share Market? Refer to the form below

Here We Talked About: