Best Technical Indicators for Swing Trading
Swing trading is the same as a long-term investment, with one key difference: timeframe. It is not day trading where the market is unstable. Rather, swing trading takes place over the course of days or even weeks. While that means forfeiting smaller price movements that day traders capitalize on, swing trading opens you up for other trading opportunities if you hold onto your trades a little longer. As always, charts can only get you so far. You need indicators to help you. Here, we will discuss some of the best technical indicators for swing trading.
One benefit of swing trading is that the larger time frame means a more stable market, unlike day trading. While you do not make small chunks of profit quickly, a well-placed trade can earn you a large chunk of profit that no day traders may get. However, if you trade stocks, it is tempting to just be complacent and hold onto the stock, which turns your swing trading into a long-term investment. In a way, swing trading sits right in the middle of day trading and long-term investments.
As a trader, you look for two swings. Swing lows occur when the market bounces from a low into an upward movement. This creates an opportunity to go long. If you do, you open a long position at low and close it at a high. Swing highs are the opposite. It is when the market bounces from a high into a downward movement. Here, you want to go short.
That sounds simple in principle, but there are caveats. Timing is everything. The charts alone do not tell much. By the time you start to see a swing, it might be too late already. Technical indicators can help you spot imminent swings before they occur.
- Best Combination of Technical Indicators
- Best Technical Indicators for Swing Trading
- Swing Trading Strategies
- Where to get the Best Technical Indicators for Swing Trading PDF
Best Combination of Technical Indicators
Technical indicators involve the use of math to point out various aspects of the price action with historical data. They are applicable on daily charts or any market with a chart to help traders access the market situation.
Traders use technical indicators to help them determine whether the market is in an uptrend or a downtrend, the momentum behind the trend, among others. Some traders may still rely on fundamental analysis and news reports, but technical indicators are most effective in identifying ideal entry and exit points.
There are three main types of technical indicators that you would be using.
You would need a trend indicator to have a general idea of where the market is heading. It can be up, down, or sideways. Traders normally use trend indicators to filter the price volatility and show the primary trend. For this purpose, they often use moving averages.
The second group of indicators is the momentum indicators. Their purpose is to show the underlying strength of a trend. This tells us a couple of things. For one, we can tell how long the trend may last. If the trend does not have much momentum left, there could be an imminent trend reversal. These indicators can highlight overbought and oversold levels as well. For this, traders often use the Relative Strength Index indicator.
The third group is the volume indicators. They tell traders how many traders are buying and selling in a given time.
You can probably tell by now that you should never use one indicator. Always have at least two by your side because only one of them does not tell you much. Having two or more indicators can help you identify and confirm potential trend reversals and other opportunities before they happen.
Best Technical Indicators for Swing Trading
Some indicators are more useful than others. Some of the best technical indicators for swing trading, Reddit says, are the following.
Relative Strength Index
Relative Strength Index (RSI) indicator is a momentum oscillator, so you can find it under the “oscillators” category. It looks at the size and magnitude of the latest price changes. Swing traders use it to identify overbought and oversold levels. The displays go from 0 to 100 with a line going up and down between these two levels. If the line goes above 70, it indicates an overbought level and potentially a trend reversal into a downtrend. If the line goes below 30, it indicates an oversold level, and the opposite may happen. There are no best RSI settings for swing trading. It is up to the individual traders to tweak it to suit their needs.
Moving Average (MA)
Moving Average is a complex technical indicator that shows the average price movement for an asset over a certain period. For this reason, MAs tend to be jittery if you use them over a short timeframe. MA indicators also consider historical movement and it might not be sensitive to the latest movements if the period is too large. Some people use Exponential Moving Averages (EMAs) that favour recent data.
Moving Average Convergence Divergence (MACD)
Moving Average Convergence Divergence (MACD-histogram) is a complex indicator that uses 12- and 26-period EMAs, although you can tweak for different periods. However, the two lines are not the moving average for those two particular periods. The MACD line (blue) indicates the distance between the two MAs. The signal line measures the price momentum. The histogram is the green or red pillars that start from the 0.00 line and they show the difference between the MACD line and the signal line.
Volume might look simple but they are one of the best indicators for day trading 2020. It might be on by default depending on what platform you use, which could be one of the reasons why beginners ignore those. Volume tells you how much an asset is being traded at that moment which indicates the power behind a trend. The higher the bars, the higher the volume and the overarching trend. This indicator is very useful when you plan to capitalize on breakouts at the support and resistance levels (more on that later). If the breakout occurs when there is high volume, the next trend would be substantial.
Bollinger Band (BB)
Bollinger Band is a momentum indicator that draws three lines. You have the moving averages line and a positive and negative standard deviation line. Swing traders like to use this because they can detect a trend before it happens, overbought and oversold areas, and volatility. The close the lines are to each other, the less volatile the market.
Finally, we have the Stochastic indicator, which is a momentum indicator that works very much like RSI. The difference lies in the underlying algorithm. This one looks at the closing price and compares it to its range over a certain period. Unlike RSI, the Stochastic indicator draws two lines that go between 0 and 100. 80 and above is the overbought level and 20 and below is the oversold area. One line displays the current Stochastic value and another one is the moving average over three days. Traders often perk up when the two lines cross, which indicates a potential trend reversal.
Swing Trading Strategies
There are many strategies out there, so try them out with a demo account and see which one suits your trading style. We will go over some of them here.
Support/Resistance + ATR
This strategy involves the use of Average True Range (ATR) indicator and support and resistance levels. Support and resistance levels do not have an indicator, so you just have to eyeball it. These are the areas where the price neither goes above (resistance) or below (support). A breakout happens when the price moves beyond that area and will settle in a new support or resistance level.
First, you identify a market and look at the support level. If the price goes below the support level, you want to see a strong price rejection where there is a close above the support level. If there is, go long on the next candle and set your stop loss below the low candle, and take profit a bit before the resistance level. How far is up to you, but people look at the current ATR value at that time and move up and down by that volume to set the stop-loss/take-profit.
This is one of the best high probability swing trading strategies because you bail out before there is selling pressure, which occurs at the resistance level.
An Alternative Strategy
Traders often say that you should trade with the big players. In Forex, you should trade in a way that aligns with the wishes of banks and major financial institutions. They are the ones driving the price movement, so it makes sense to profit from that.
However, some traders go against the tide. They look for a trend with a strong momentum that creates a new resistance level and then wait for a strong price rejection. The next move would be to go short on the next candle and set the stop-loss above the resistance level and take-profit at the new support level.
Where to get the Best Technical Indicators for Swing Trading PDF
Given how many indicators you have at your disposal, there are countless strategies to rake in profit. But as you can tell, these indicators require a fundamental understanding of the market. And what better way to learn about the basics of trading than with AsiaForexMentor. With our proprietary One Core Program, you can learn about the best combination of technical indicators and more. Plus, the knowledge and experience you get from this course apply to other markets as well, so you can trade stocks, options, forex, and even cryptocurrency, using the same system.
You do not have to take everything at face value. You can get our five-part trading system course for free that goes over best technical indicators for swing trading, and more. When you see the value in this free document, you will really see the value in our course, and I hope to see you on the other side.