Top 6 indicators every day trader needs for CFD deals

4 min readJan 30, 2025

Day trading Contracts for Difference (CFDs) requires precision, strategy, and the right tools to succeed. Among the tools traders rely on, technical indicators play a crucial role in analyzing market conditions, identifying trends, and making informed trading decisions. This article explores the best indicators for day trading CFDs and how to use them effectively.

Effective indicators for day trading CFDs should possess the following qualities:

Real-Time Responsiveness: Indicators need to provide timely information to help traders react to fast-moving markets.
Simplicity: Clear and straightforward signals are essential to avoid confusion.
Versatility: The ability to work across various assets such as forex, stocks, or commodities enhances a trader’s flexibility.

Combining multiple indicators can provide a more comprehensive market analysis, but overloading charts can lead to conflicting signals.

Top indicators for CFD day trading CFDs

Moving Averages (MA)

Moving averages smooth out price data to help traders identify the direction of the trend more clearly. For day trading, short-term moving averages like the 9-period EMA (Exponential Moving Average) and 21-period EMA are particularly effective.

— How to use:

When the price stays consistently above the moving average, it indicates an uptrend. Conversely, prices consistently below the moving average suggest a downtrend.
Combine two moving averages of different periods (e.g., 9 EMA and 21 EMA) to identify crossovers. A bullish crossover occurs when the shorter EMA crosses above the longer EMA, while a bearish crossover happens when the shorter EMA crosses below the longer EMA.

Relative Strength Index (RSI)

The RSI measures the strength and speed of price movements to identify overbought or oversold conditions. Use a 14-period RSI with levels set at 70 (overbought) and 30 (oversold).

— How to use:

Look for divergences where the RSI and price action move in opposite directions, signaling potential reversals.
During strong trends, the RSI may remain in overbought or oversold zones for extended periods. Use it alongside trend indicators to confirm signals.

Bollinger Bands

Bollinger Bands consist of a simple moving average (SMA) and two standard deviations plotted above and below the SMA. They help gauge market volatility and identify potential breakout points.

— How to use:

Narrow bands (squeezes) indicate low volatility and often precede significant price movements. A breakout above or below the bands signals potential trade opportunities.
Wide bands suggest high volatility. Traders can use these to identify overextension and potential mean reversion setups.

Moving Average Convergence Divergence (MACD)

The MACD is a momentum and trend-following indicator that shows the relationship between two moving averages of a security’s price.

— Components:

MACD Line: Difference between the 12-period EMA and 26-period EMA.
Signal Line: 9-period EMA of the MACD line.
Histogram: Visual representation of the difference between the MACD line and the Signal line.

— How to use:

Look for crossovers between the MACD line and the Signal line. A bullish crossover occurs when the MACD line rises above the Signal line, while a bearish crossover occurs when it falls below.
Divergence between the MACD and price action can indicate potential reversals.

Fibonacci Retracement

Fibonacci retracement levels are horizontal lines that indicate areas of potential support or resistance based on key Fibonacci ratios: 23.6%, 38.2%, 50%, 61.8%, and 78.6%.

— How to use:

Identify a significant price move (high to low or low to high) and plot the Fibonacci retracement tool.
Use the retracement levels to plan entry points, stop-loss placements, and profit targets. For example, a pullback to the 38.2% or 50% level during an uptrend may signal a buying opportunity.

Volume indicators

Volume indicators help confirm the strength of price movements by analyzing the amount of trading activity.

— Examples:

On-Balance Volume (OBV): Tracks cumulative buying and selling pressure by adding volume on up days and subtracting volume on down days.
Volume Weighted Average Price (VWAP): Calculates the average price a security has traded at throughout the day, weighted by volume. It is particularly useful for intraday traders to identify fair value.

— How to use:

Use OBV to confirm trends. Rising OBV alongside rising prices indicates strong buying interest, while falling OBV with falling prices signals strong selling pressure.
VWAP can be used as a dynamic support or resistance level, especially for intraday trading.

How to use indicators effectively

Avoid Overcrowding: Limit the number of indicators on your chart to maintain clarity.
Combine Complementary Indicators: For example, pair RSI with Bollinger Bands to validate signals.
Backtest and Adjust: Test indicator settings on historical data and adjust them to suit your trading style.

Continue reading:

Best indicators for CFD day trading