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Are you a beginner swing trader looking to take advantage of price fluctuations and are looking for the best indicators for swing trading to help you do that? Then look no further ‒ you’ve come to the right place!
In this ultimate guide, we'll show you 15 of the most reliable and effective indicators that expert traders use when creating their own winning strategies for swing trading. Along with specific indicator recommendations and explanations of their functionality, we've also included some tips on combining these tools to get the most out of them. So if you're serious about becoming a successful swing trader - let's get started!
Understanding the 3 Different Types of Swing Trading Indicators
No use in beating around the bush - let’s dive right into our subject. But first thing’s first: understanding the different categories of indicators. Every indicator falls under one of three categories: Trend Indicator, Volume Indicator, or Momentum Indicator.
By understanding how these different types of indicators work, you can make better choices on the combination of indicators you use while swing trading. Thus, you will be able to make more informed decisions that can potentially maximize your returns. Conversely, missing an opportune moment or suffering fast losses is also possible without proper knowledge of the types of indicators that can help your swing trading strategy.
Trend Indicators
Trend indicators are used to identify the direction and strength of a market trend. They typically use mathematical formulas or statistical techniques to visualize the prevailing market trends in order to make predictions about future price movements. The most popular swing trading trend indicator is the moving average indicator.
Volume Indicators
Volume indicators are used to measure how many swing traders are actively engaging in a given asset. High volume indicates that more traders are participating in the market and this may signal bullish trends, while low volumes might indicate bearish trends.
Momentum Indicators
Once a trend is identified, momentum indicators help you know how strong this trend is, how much ‘oomph’ it has and how far it could potentially go. Momentum indicators basically measure the rate of change in price movements. They compare the current price of an asset to its past prices and display whether the trend is becoming more or less bullish or bearish. Popular momentum indicators include Relative Strength Index (RSI) and MACD (Moving Average Convergence Divergence).
The Best Indicators For Swing Trading Explained
Best Indicators For Swing Trading #1: Simple Moving Average
The Simple Moving Average (SMA) helps swing traders identify trends and potential opportunities by showing the average price over a set period of time. It can be used for spotting support and resistance levels, providing short-term buying/selling signals, determining trend direction, and filtering out noise from the markets.
Best Indicators For Swing Trading #2: Exponential Moving Average
The exponential moving average (EMA) is a useful indicator for swing trading as it places more emphasis on recent price movements. This can provide short-term buy and sell signals. It also allows traders to identify trends quickly, filter out noise from the markets and detect potential support/resistance areas more easily. The simple moving average (SMA), on the other hand, is less responsive to recent price changes and can lag behind the market.
Best Indicators For Swing Trading #3: MACD
The Moving Average Convergence Divergence (MACD) indicator is a more complex technical analysis tool that uses the difference between two exponential moving averages (EMAs) to identify trends and generate buy and sell signals.
Swing traders use the MACD indicator to stay ahead of the market, by using the signals generated to enter new positions or close out existing ones at opportune times. Additionally, they can use it to identify potential support/resistance areas and gauge trend strength.
The MACD indicator consists of three elements:
- The MACD line
- The histogram
- The signal line
Swing traders usually consider investing when the MACD line is crossing over the signal line, and consider selling when it is going underneath.
The MACD is a useful tool for analyzing trends, and one way to use it is by looking for discrepancies between the histogram and the market behavior. This often serves as an indicator that the trend could be about to reverse.
Best Indicators For Swing Trading #4: Ease of Movement
The Ease of Movement (EMV) indicator is an oscillator that measures the relative volume and price movements of a security. It helps swing traders to analyze the momentum of price changes and identify potential buying/selling opportunities. The EMV indicator can be used to gauge the strength or weakness of a trend, as well as to recognize when market conditions are becoming overbought/oversold. Additionally, it can help traders to anticipate reversals in the momentum of a security's price.
Best Indicators For Swing Trading #5: Volume
As a swing trader, volume is an invaluable and simple tool for gauging the strength of a new trend. Fundamentally, it's understandable that a trend with higher volume is sure to be more powerful than one with too little of it. Increasing trading activity provides a more solid foundation for market prices to fluctuate making it ideal for swing trading.
Best Indicators For Swing Trading #6: Relative Strength Index (RSI)
Momentum indicators such as the RSI help swing traders detect specific oscillations inside broader trends, making them an attractive choice for those looking to capitalize on short-term price movements. The Relative Strength Index (RSI) is among the most popular momentum indicators and is a widely used tool for measuring whether an asset is overbought or oversold. This lets you see potential market swings coming before anyone else does.
RSI (Relative Strength Index) measures the magnitude and frequency of the price movements in a certain market over a specified period of time, often 14 days. It is represented as an oscillator which moves between 0 and 100 on a chart.
Generally, values over 70 on Relative Strength Index (RSI) signify an overbought market condition and may be a cue for opening a short position. Conversely, values under 30 are indicators of the market being oversold and may prompt traders to go 'long'.
If a particular market is on an upswing but its RSI surpasses seventy, it could be about to switch to a bear market. On the other hand, if the RSI stays low, the positive trend is likely to persist.
Best Indicators for Swing Trading #7: Bollinger Bands
The Bollinger Band is an effective momentum indicator made of a simple moving average and two positive and negative standard deviations. It's an excellent tool for traders to identify potential market trends. Bollinger Band is a preferred choice among swing traders as it can detect trends quickly, identify overbought and oversold levels and also assess volatility. The visualization provided from the indicator is also quite neat and legible on the chart.
The BB width has an inverse relationship with the volatility. When the market is more volatile, the bands expand and when it is calmer, they close in. As such, the closer these bands are to each other, the lower the volatility in the marketplace.
Bollinger Bands can be especially powerful when it comes to trading in markets with ranging price movements, or prices moving inside a horizontal channel. They are also effective when used in trending markets. When the price reaches the upper line of the Bollinger Bands, it may be a good time to go short for swing traders. On the other hand, when it touches the lower line, it could mean that a rebound is coming.
Essentially, Bollinger Bands exist as an indicator to suggest when a market may be entering a new trend. When the band begins to expand it is often a signal that a shift in price action is occurring and could signal that any trading within the range should be stopped.
Best Indicators for Swing Trading #8: Stochastic Oscillator
The Stochastic Oscillator is a momentum indicator that measures the relative position of the closing price within a specific trading range over a given period of time. Swing traders can use this indicator to measure overbought/oversold conditions, as well as to identify potential entry and exit points in their trades. The Stochastic Oscillator is beneficial to swing traders because it is one of the best indicators for detecting strong trends. Additionally, it helps traders to recognize when prices are likely to reverse or when they could be forming divergences.
The stochastic oscillator is represented graphically between 0 and 100. Generally, a value above 80 would be considered overbought and anything below 20 is oversold on this indicator. The stochastic oscillator consists of two lines which is different from the RSI. The oscillator's present figure is embodied by a solitary line while a three-day running average is visible on the other line.
A high or low reading of a stochastic oscillator isn't always a sign of an impending reversal. Trends that remain in either state for long periods are quite common. Thus, many traders keep an eye out for when the two lines on the indicator cross, as this could be an indication that a shift may happen soon.
Best Indicators for Swing Trading #9: On Balance Volume (OBV)
On-balance volume is an important tool that traders use to measure the market activity. It adds trading volume when the market rallies and subtracts it when the market drops, thereby showing you how much buying and selling pressure there is in the market.
Best Indicators for Swing Trading #10: Chaikin Money Flow (CMF)
The Chaikin Money Flow (CMF) indicator is used by swing traders to measure the flow of money into and out of an asset. It is calculated by subtracting the difference between two exponential moving averages from the sum of these two EMAs. The CMF's value can then be used to determine if there is more buying or selling pressure in an asset, which helps traders make informed trading decisions.
Swing traders use the CMF to identify when buyers are dominating over sellers and enter into long positions. Conversely, swing traders also use the CMF to determine when sellers are dominant over buyers and take short positions.
Best Indicators for Swing Trading #11: Average True Range (ATR)
The Average True Range (ATR) is used by swing traders to measure an asset’s volatility. It tracks the difference between the high and low prices of a given period, such as one day or one week. This data is then smoothed out using an exponential moving average to create the ATR indicator. Swing traders use this indicator to gauge the potential range of a given asset, which allows them to better determine risk levels and set appropriate stop-loss orders. They can also use it to enter into trades at more opportune times when there is more expected volatility and thus higher potential returns.
Best Indicators for Swing Trading #12: Commodity Channel Index (CCI)
The Commodity Channel Index (CCI) is a technical indicator used by swing traders to measure when an asset is overbought or oversold. It is calculated by taking the difference between the asset's current price and its exponential moving average, and then dividing it by the mean absolute deviation of this difference. The CCI can then be used to identify periods when a stock has been overbought or oversold, which helps swing traders determine when to enter into long or short positions. Additionally, swing traders use the CCI to spot emerging trends in a stock and thus capitalize on potential trading opportunities.
Best Indicators for Swing Trading #13: Accumulation/Distribution Line
The Accumulation/Distribution Line (ADL) is an important technical indicator used by swing traders to measure the buying and selling pressure of a given asset. It is calculated by taking the difference between an asset's closing price and its daily high or low, divided by the total range of the day. A higher ADL indicates more accumulation or buying pressure, while a lower ADL indicates more distribution or selling pressure. As such, swing traders use this indicator to determine supply and demand levels within a given asset and thus identify potential trading opportunities. It is also one of the best indicators for swing trading as it helps identify extremely overbought or oversold conditions in an asset quickly and accurately.
Best Indicators for Swing Trading #14: Parabolic Stop and Reverse (SAR)
The Parabolic Stop and Reverse (SAR) is widely used by swing traders to identify trends in a given asset. The Parabolic SAR is calculated by plotting dots along a security's price chart that indicate whether the trend is bullish or bearish. It works by calculating points where the trend has reversed, thus helping swing traders identify when to enter into long or short positions. Additionally, the PSAR can be used to generate buy and sell signals that indicate when an asset has gone past its peak or trough and is likely to move in the opposite direction
Best Indicators for Swing Trading #15: Ichimoku Kinko Hyo
We have now reached the last of the best indicators for swing trading: The Ichimoku Kinko Hyo indicator, or simply the “Ichimoku Cloud”. This is a versatile technical trading indicator used by swing traders to identify support and resistance levels in a given asset. The indicator is composed of five lines that measure momentum, trend direction, and volatility. The first two lines are called Tenkan-sen and Kijun-sen. These measure the average price over a period of time and act as support and resistance levels within the Ichimoku Cloud. The other three lines make up the cloud itself; Senkou Span A (fast line), Senkou Span B (slow line), and Chikou Span (lagging line). The cloud acts as an area of support for rising trends and an area of resistance for falling trends.
Swing traders use this indicator to identify dynamic areas of support and resistance, calculate future price movements, identify entry and exit points, and even generate buy/sell signals.
How do You Combine the Best Indicators for Swing Trading?
To successfully combine the best indicators for swing trading you must consider that your combination needs to do the following:
- Identify trends.
- Calculate entry and exit points.
- Generate buy/sell signals.
Use a combination of trend-following indicators such as Moving Averages, Momentum Oscillators, and Parabolic Stop and Reverse (SAR). Additionally, traders often combine these with oscillators such as Stochastics or Relative Strength Index (RSI) to identify overbought/oversold areas. Lastly, Ichimoku Kinko Hyo or other cloud-based indicators can be used to gain a better understanding of how the market is moving relative to an asset’s price. By combining these various types of indicators, swing traders can get a more comprehensive view of the markets and make more informed decisions when entering positions.
Simplifying Your Swing Trading with Trading Signals
Trading signals help swing traders simplify their trading by providing them with a systematized approach that takes the guesswork out of trading decisions. This type of system requires minimal research, as most signal providers offer historical performance data and detailed analysis to justify their signal recommendations.
Additionally, trading signals often include buy/sell points which allow traders to quickly execute without having to constantly monitor the markets or wait for optimal entry and exit points. These features allow swing traders to minimize their research time while ensuring they are able to take advantage of the right opportunities in the market.
Final Swing Trading Thoughts
The world of swing trading is incredibly complex and difficult to master, and a trader’s success often boils down to being able to recognize and respond effectively to various indicator signals. We hope that our in-depth look at the best indicators for swing traders gave you an appreciation of the power, importance, and potential they have to help you create a successful trading strategy.
Ultimately though, it’s up to each individual trader to properly test (perhaps through a demo account), understand, and implement effective or unique indicators into their trading plans. Once you’ve tested these indicators and feel comfortable to put some money in the game, then you can start trading with a live account.
To make the trading decision process easier, don't forget to sign up for our free trading signals which will give you access to expert-level analysis on all of your favorite market picks. With the right tools and knowledge, every swing trader has the potential to reach rewarding results.
