Swing trading indicators can be helpful because they show important support, resistance levels, and trend changes. Some popular indicators include the 50 sma, 100 sma, and 200 sma, or simple moving average lines. Other popular indicators include RSI and MACD. However, it’s important not to get bogged down by them; they are not foolproof because most are lagging indicators.
Do you use swing trading indicators? They paint a picture and are part of a system that can dictate how to trade. When you’re swing trading, you buy and hold a stock for over a day. A typical swing trade lasts 3-6 days up to a few weeks. Occasionally, our team will hold a little longer, say a few months, if the trend is intact.
The indicators will tell you if you want to be bullish or bearish with your trade. The charts, and thus indicators on the chart, interpret the trend and direction in which a stock is moving. They also help determine if the trend should continue or if a possible reversal is nearby. Swing trading options are a great way to profit when you know how a stock is heading.
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Swing Trading Indicators Explained
Swing trading techniques work best in stable markets where the trend is clear. You can ride the stock up and down when you swing trade.
Swing trading indicators tell you which way to ride. Typically, the choppier the market, the more difficult the trade. Some traders like choppy markets to sell options and collect premiums.
The swing trading indicators may not work as you think they should, causing you to move away. Especially when you’re new to trading and learning how these things work. You can get discouraged and quit.
You need to have a group of people who have your back or good information and get experience. Paper trading is a great way to start. Learn the mechanics of trading before risking any capital.
No indicator, no matter how simple or advanced, tells the future of the markets. Trading is all about managing risk. But the indicators can give you a picture of the probability of its heading.
What Are the Best Indicators for Swing Trading?
1. Relative Strength Index (RSI)
The relative strength index, or RSI, is a momentum indicator. It provides the strength of price performance. Not only does it tell you if a stock is oversold, but it is also overbought. Combining RSI with other indicators can help you confirm your entries and exits on trading.
When a stock is oversold, it’s selling at a price that’s typically lower than the actual value of a stock and due for a bounce. A price reversal is coming, so most people like buying a stock when it’s oversold. Swing traders and investors use it to get more bang for their buck.
When a stock is overbought, it’s in a constant upward trend. If the RSI shows that a stock is overbought, you don’t want to enter at those prices because a correction is coming.
Stocks typically above 80 are considered overbought; the more over 80, the more extreme the overbought levels.
The bottom line is that the price of the stock is going to come down eventually. Confirming with RSI is helpful for swing traders. We use these swing trading signals to find entries and exits.
2. MACD
Swing trading indicators like the moving average convergence divergence or MACD are also momentum indicators. It’s a trigger for buy or sell signals.
MACD crossovers show what territory a stock is headed to. MACD is considered a lagging indicator based on moving averages based on price moves after the fact. It subtracts a 26-period moving average from a 12-period moving average to define the MACD line, then turns THAT line into a 9-period moving average to define the signal line.
However, some traders like to adjust MACD values beyond the default to get quicker or slower readings on the MACD – smaller numbers make it more violent and responsive, while larger numbers smooth it out and make it less violent…something to play with.
There are two crosses on a MACD – one cross is when the MACD crosses above or below the signal line, and the other cross is when the MACD crosses above or below the zero line. When the MACD is above the zero line, the primary trend is bullish; when the MACD is below the zero line, the primary trend is bearish. When the MACD is above the signal line, the secondary trend is bullish, and when the MACD is below the signal line, the secondary trend is bearish.
Divergence
We also use the MACD to seek out divergence; the easiest of these signals would be when the MACD is above zero, and the price makes a higher high, but the MACD makes a lower high (consider that bearish divergence) – or when the price makes a lower high. In comparison, the MACD makes a higher high (which we would consider a bullish divergence).
We can also use this divergence pattern for the downside – if the MACD is below zero and the price makes a lower low while the MACD makes a higher low (bullish divergence) – or when the price makes a higher low but the MACD makes a lower low (bearish divergence). There are other divergence signals for the MACD, with more to learn.
MACD reveals changes in a stock’s price’s direction, trend, and strength.
3. Moving Averages
Swing trading indicators like moving averages are used to smooth out price movements in the short term. Moving averages can show long-term trends.
Moving average crossovers with the 50 and 200 SMAs are the best swing trading indicators out of the moving averages. You can use the 9 and 20 EMAs, which work better for intra-day or short-term swing trading (a couple of days).
Use these moving averages as support and resistance. You never want to trade a stock at resistance unless you’re shorting it. VWAP is another great tool for support and resistance.
50-day and 200-day moving averages are major daily resistance or support zones. If a stock is below these averages, it’s typically considered a bearish trend. Above, it’s a bullish trend.
Moving average crossovers can identify the end of a trade and when to enter or exit. Swing trading allows you to ride the multi-day wave. The “Golden Cross” Is when a 50-day moving average crosses over the top of a 200-day moving average. Some people scan for this specifically and buy stocks crossing this way for swing trading.
Ride the move up, get out, and ride it back down. Play with observing your favorite moving average crossovers and see what kind of results you get.
Look for 5SMA crossing over 10SMAs for short-term swing trades.
Traders will wait until a confirmed cross has happened to avoid a fake out. When a cross happens, it doesn’t mean it will go flying up. Sometimes, it’s a slow grind before a pop-up.
4. Moving Average Crossovers
Some people like certain moving average crossovers more than others. We scan for specific criteria in making our nightly watch lists and give you guys a customized swing trade watch list to follow.
Always look to trade the momentum of the stock. A stock price relationship to the moving average can give much insight into where the stock is headed.
Using your swing trading indicators to help you identify the momentum and trend of the stock helps you know which trade to place.
Options are great for swing trading. Knowing the trend helps you identify whether or not you want to buy calls or puts.
Swing trading stocks and options is also a fantastic way to get around the PDT rule. Because you’re holding the stock at least overnight, the trade doesn’t count against you as a same-day trade. PDT can be a bane to traders, so you need a good strategy to get around it.
5. Weekly Moving Averages
The 10-week EMA is a popular moving average; this moving average is often considered the “line in the sand” for bearish or bullish strength. We do not want to attempt swing trading short a market above its 10-week EMA, and we do not want to attempt swing trading long a market under its 10-week EMA.
The 10-week EMA can be a simple gauge to identify if a stock is strong and healthy, if it is above that line and stays above it, or if it is below that line and stays below it. Be careful of cross-overs – often, the price hits the 10-week EMA first and bounces – then hits it again to break through it. If the price gets too far from the 10-week, it will often pause or retrace towards the 10-week EMA.
If some news or earnings send a stock back toward its 10-week EMA, it can be used as a target profit area (shorting into the 10-week EMA from above or taking long trades into the 10-week EMA from below. Just remember – be ready to exit the trade (or close most of it) on the first touch – because it likely bounces.
Final Thoughts: Swing Trading Indicators
Using swing trading indicators keeps you from trading blind. Also, it keeps you from trading on emotions. Green, red, green. Stocks change daily, so you need a strong technical system to help keep your emotions in check. You don’t have to guess which way to trade a stock.
Sometimes, a new trader starts trading without understanding how these indicators can help them. It takes time. Once you are comfortable, knowing how to trade weekly options becomes a profitable strategy.
Don’t rush! Learning trading is a journey of self-exploration. You’re going to learn a lot about yourself in the process. Ultimately, have fun and manage risk. Play is safe!
Sometimes, new traders stop using them because they didn’t work out how they thought they should. Or new traders switch from indicator to indicator, looking for the holy grail that will make it all simple.
They aren’t perfect. However, the swing trading indicators help dissect the market’s actions so you can make an informed trade. It’s not an exact science, but it sure helps!
Frequently Asked Questions
Best AI indicators for swing trading:
- Moving Averages
- RSI (Relative Strength Index)
- MACD (Moving Average Convergence Divergence)
- Volume
- Bollinger Bands
Here are a few golden rules of swing trading:
- Do not risk more than you are willing to lose.
- Let your winners run.
- Cut your losses quickly.
- Never catch a falling knife.
- Do not risk more than 2-3% of your account.
MACD (Moving Average Convergence Divergence) is a good indicator to use when swing trading, however, it is a lagging indicator. It is calculated based on moving average lines which are popular, but should not be relied upon when trading.
Most successful swing trading strategies:
- Reversal trading
- Breakouts
- Breakdowns
- Moving average crossovers
- Moving average bounces
Best patterns for swing trading:
- Ascending triangle: bullish breakout pattern
- Cup and handle: bullish breakout pattern
- Bullish hammer: bullish reversal pattern
- Bullish harami: bullish reversal pattern
- Shooting star: bearish reversal pattern
