What are the Best Indicators for Swing Trading? by Asher Tame Jul, 2023

best indicators for swing trading

Because swing traders hold trades longer than intraday traders, they also run the risk of serious losses, which are increased by holding trades every other day. Swing trading is one trend-following tactic that involves opening trades in the direction of price movement at the bottom of local pullbacks. But like any other trading strategy, this strategy has its advantages and disadvantages.

The Commodity Channel Index (CCI) measures the momentum of price fluctuations. Specifically, it measures the difference between the current price of an asset and its average price over a specific period. An asset is oversold when its RSI value falls below 30 as noted in the Bitcoin price chart above. This indicates that its price has fallen too rapidly and may be due for a rebound. This indicator can be used to identify the current trend direction. A bullish trend is indicated by the Supertrend green line residing below the candlesticks.

This indicator consists of three lines, with a centerline being a moving average, and two outer lines drawn based on the asset’s volatility. Bollinger Bands measure volatility and identify potential price trends in financial markets and consist of three lines plotted on a price chart. Chaikin Money Flow (CMF) measures the amount of buying and selling pressure in a financial market. The CMF indicator uses both price and volume data to generate its signals. It measures the accumulation or distribution of an asset by comparing the closing price to the high and low range of the price for the day. Swing traders are not obligated to stay in front of a computer and monitor the market every hour.

It can be easy to get lost in the minute-by-minute fluctuations of a price. But when we look at those nice smooth moving average lines, the trend of the price becomes pretty clear. Indicators will generally tell you the direction a trend is going, the momentum of that trend (how strong the trend is), or the volume of trading that is happening on a given asset. Combining indicators that show each of these facets of a security can help you understand the full picture. Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market.

Swing Trading and Fundamental Analysis

If a shorter time period moving average is above a more extended time period moving average, then-recent price action is more bullish for the stock. The indicators above are powerful tools that can help traders identify potential trend changes, support and resistance levels, and potential entry and exit points. The MACD (moving average convergence divergence) is one of the best indicators for swing trading because it combines both the SMA and EMA for deeper insights. It measures the discrepancy between the two moving averages to confirm a trend and assess its momentum. By studying statistical trends, traders try to better understand the ways that supply and demand can impact changes in price, volume and volatility.

Familiarise yourself with our online swing trading system by watching our platform trading tutorials. Unlike day trading, which involves closing positions before the market closes for the day, swing traders hold positions for a few days to several weeks. The goal of swing trading is to capture larger price movements, and thus the strategies employed have a longer-term outlook than those used in day trading. Swing trading is a strategy that involves buying and selling financial assets, such as stocks or currencies, over a short period, typically a few days to a few weeks. The goal is to capture short-term price movements in the market rather than holding positions for months or years, as is the case with long-term investing.

Understanding Swing Trading

Price patterns and trends based on historical performance are then used to identify signals according to things like market sentiment and psychology. The relative strength indicator or RSI is a momentum oscillator indicator that moves within larger trends and has value for swing traders. The momentum indicator works in a similar way as the breadth indicator above, moving from overbought to oversold. In swing trading, there are fewer trading costs (broker and exchange fees) because there are fewer trades in a month than in day trading.

best indicators for swing trading

Swing trading is a trading style where traders aim to capture gains from an asset’s price movements over a period of a few days to several weeks. Successful swing traders use technical indicators to identify potential buy low and sell high signals. Indicators are technical analysis tools that provide valuable information about market trends, momentum, and potential price movements. They help swing traders identify key entry and exit points, as well as trend reversal or market turning point signals. Swing trading is seen as more of a medium-term trading strategy, whereas day trading applies only to the short-term. Whereas swing traders could hold their positions for days or weeks at a time, day traders only buy and sell assets with the aim of closing their positions before the end of each day.

Relative Strength Index (RSI)

Of course, a price can always break out of these lines, but that’s usually due to a change in market conditions or some other impetus. It might be because of some event that has triggered a rush to buy or sell – but regardless, it means something’s happening. While you can absolutely have a favorite indicator, it’s a good idea to get to know several and use multiple indicators before entering or exiting a trade. The more indicators say that a change will happen, the more likely it is that the market will actually move that way. Swing trading can be profitable whether the market’s going up or down – that’s one of its major appeals. In both cases, you’re doing your share of market research to predict what’s going to happen – but the type of information needed is distinctly different.

Swing traders and investors use it so they get more bang for their buck. Within the context of financial markets, Price patterns and trends based on historical performance are then used to identify signals according to things like market sentiment and psychology. Also, a 9-day EMA add to the  MACD line to indicate buy or sell signals. The most common way to use MACD as a swing trading indicator is to look for divergences or a crossing of the center line of the histogram. Swing traders can use Heikin-Ashi candles to identify a series of bullish or bearish candles to determine trend direction. As illustrated below, if there are multiple bullish candles in a row, it indicates a bullish trend.

  • Even though swing trading does not cost as much as day trading, the costs of constant trading can add up to a reasonable sum.
  • A higher or lower RSI value indicates a stronger uptrend, while a higher or lower RSI value indicates a weaker downtrend.
  • When the RSI gives a signal, it is thought that the market will reverse, thereby providing a leading sign that a trader should enter or exit a position.
  • The CMF indicator provides information about the strength of buying or selling pressure in the market.

This means swing traders must familiarise themselves with technical analysis, using these techniques as a set of guiding principles for their decisions. They should also have an understanding of fundamental analysis, examining the asset’s fundamentals to support their technical evaluation. In this guide, we’ll cover the basics of swing trading, how indicators can help you, and of course, what those indicators are. Swing traders also utilize support and resistance levels as key elements in their trading strategies. Support and resistance are price levels at which the buying or selling pressure has historically caused the price to reverse or pause. You may refer to our blog about Price Action strategies to learn more about trading strategies using support and resistance.

If we break it down even further, we see that point A represents the point at which a new prevailing trend emerges, while a market retracement occurs at point B. The next point, C, represents the point at which the initial trend resumes, while point D involves trading the next correction. Overall, the goal is to recognize the market’s rhythm despite the type of market (crypto, forex, etc.), timeframe, or market conditions (uptrend, downtrend, range-bound).

What Is The Best Indicator for Swing Trading?

In the screenshot above, the red line represents a short, 9-day moving average, while the blue line represents a long, 21-day moving average of AMD. With our platform in your trading arsenal, you’ll get market guidance, time-tested investing strategies, and individual stock recommendations. https://g-markets.net/helpful-articles/xm-pip-value-calculator/ Experience the difference for yourself and you’ll never go back to trading the old way. The volume indicator is perhaps the most simple of all – but also one of the most important. It shows you exactly how much of a stock is being traded, and how distinguished a newly formed trend is.

best indicators for swing trading

The Prev_Trend is the previous trend direction, which can either be bullish or bearish. The Parabolic SAR can be used to identify potential trend reversals, as a change in the position of the dots can signal a shift in the direction of the trend. The Parabolic SAR (“Stop And Reverse”) identifies potential trend reversals and provides trailing stop-loss levels for open positions. It consists of a series of dots that are positioned above or below the candlesticks. An example Bitcoin candlestick chart along with blue Parabolic SAR dots is illustrated below.

Swing Trading Indicator #3: Zig Zag

Swing trading indicators like moving averages are used to smooth out price movements in the shot term. Swing trading indicators can be very helpful to use when trading because they show important support and resistance levels and trend changes. Some of the popular indicators include the 50 sma, 100 sma, and 200 sma, also known as simple moving average lines. However, it’s important to not get bogged down by them, they are not foolproof, because most of them are lagging indicators.

It calculates the average price over a specified period, with the most common being 50, 100, and 200 days. The calculation is made by taking the sum of the closing prices over the specified period and dividing by the number of periods. The OBV indicator plots a line that shows the running total of volume for a specific asset. It adds the volume on up days and subtracts the volume on down days, resulting in a cumulative line. When prices rise, the OBV line also rises, indicating buying pressure, while when prices fall, the OBV line falls, indicating selling pressure. The Stochastic Oscillator is scaled from 0 to 100 and generates signals based on overbought and oversold levels.

The past performance of any trading system or methodology is not necessarily indicative of future results. Premium indicators are indicators that traders generally pay for with their own money. Premium indicators are complex in design but simplify the most up-to-date information given to traders on their technical charting. This is a bit more complex indicator and calculated by subtracting the 26-period EMA from the 12-period EMA.

And in the chat room, we encourage people to ask any questions they have, whether about swing trading indicators or anything else. Rather than shooting from the hip with your trades, you simply follow the rules of the indicator and manage your trades that way. If the conditions are fairly stable, you might enter a long position when the price is nearing the support line (its typical lowest point). Then, you’ll know to exit your trade when the price nears its resistance line (its typical highest point). In a nutshell, the support line indicates the typical lowest low of a price within a given period, while the resistance line shows you the typical highest high.

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