Best Indicators for Swing Trading

Would you rather bet on the game – or on each play? 🎲

Of course the answer is going to vary based on who is betting. While some people might want to analyze players and coaches and weather conditions to make predictions about the big picture, others might want to notice smaller fluctuations or changes in the status quo to make bets on individual plays while the game is still unfolding. 

If long-term investments are like betting on the game (which company is the new Apple? How will the market come back from the $250 billion crypto sell-off?), swing trading is like betting on the plays. 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 trading won’t keep you from needing to know if the dollar’s set for a winning week, but there are distinct tools that can help you predict the more minute market fluctuations that bring swing traders the most profit. In this guide, we’ll cover the basics of swing trading, how indicators can help you, and of course, what those indicators are.

Ready? Batter up! 

What you’ll learn

• How to Understand Swing Trading
• Importance of Swing Trading Indicators
• Best Indicators for Swing Trading
• Tools for Swing Traders
• Where to Find Swing Trading Indicators
• Swing Trading Risks
• FAQs
• Get Started with a Broker

Understanding Swing Trading 🔬

If you’ve ever been interested in day trading but overwhelmed by the prospect of closing out all your trades each day, swing trading might be right for you. Swing trading follows the momentum of the market: you hang onto your trades as long as it looks like the price will keep going up (or down). This could be days or weeks, and the longer time frames give you a greater potential for profit. 

Swing trading does require more active attention and decision-making than long-term investment, as it is still your intention to offload your position once the market changes. With longer investments, it can be easy to ignore these fluctuations and delay making decisions about when to buy or sell. 

Swing trading can be profitable whether the market’s going up or down – that’s one of its major appeals. Some traders prefer a steadier market with smaller fluctuations, while others might work with more volatile markets or securities – so something like the knowledge that AMC Entertainment stock options are expected to become volatile might direct your decisions.

Swing traders need to look out for two things: swing highs and swing lows. A swing low occurs when the market hits a low point, and a swing high when it hits a high point. The goal of swing trading is to enter at one of these points (a long trade at a low or a short trade at a high), and exit at the other.

Why Indicators are Crucial for Swing Trading

Swing trading is all about predicting what the market will do. And while some of that can be done by researching the Dollar rising thanks to U.S. yields and predictions from strategists that the stock market may soon become volatile, swing trading requires you to look at smaller fluctuations in detail.

We can do this with technical analysis – a method of mathematically predicting when a change in momentum might occur. This is the primary method that swing traders use to capitalize on fluctuations and smaller trends. It is essentially the backbone of swing trading and it uses indicators. 

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. 

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. 

Top 5 Swing Trading Indicators 🔝

So, you’re ready to make swing trading one of your go-to forex strategies – or a strategy for trading any other asset, for that matter! That means it’s time to dig into the indicators themselves – so buckle up and get ready, because the charts are coming out.

Before we dive in, it’s important to emphasize that new traders shouldn’t be overwhelmed. For those who are feeling lost, the top swing trade alert services can be of great aid when just starting out.

Moving Averages ↕️

Moving averages are one of the most popular and accessible indicators. They essentially calculate the average price movement an asset has gone through over a certain period of time. Let’s look at a moving average to understand better:

First we have the actual price chart – but there’s a whole lot of ups and downs and little squiggles when we look at that line. 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. 

Moving averages are based on past data. This means that they are most useful in confirming an upward or downward trend, and they are not able to predict what will happen to that trend in the future. You can look into simple moving averages, which show an average of all closing prices over a given period, or exponential moving averages, which weight more recent prices as higher priority. 

You can set your moving average to cover long, medium, or short periods of time, which will of course give you different types of insights. It’s most helpful to see when a short-term (usually 50 days) moving average crosses a long-term moving average (usually 200 days). This does indicate that the trend may soon reverse. If a short-term moving average crosses from below to on top of a long-term moving average, that’s a bullish signal. If the short-term crosses from the top, that’s a bearish signal. 

Used for:

• ☑️ Confirming a current trend
• ☑️ Predicting trend reversals

Moving Average Convergence Divergence (MACD) 📊

We understand moving averages – now let’s put a bunch of moving averages together to see what they do! Basically, in the MACD we take two moving averages, usually a 26-day and a 12-day. You then subtract the longer one from the shorter one – that creates the MACD line. Next, you have a signal line, which indicates changes in price momentum. And finally, you have the histogram representing the difference between the MACD and the signal line.

So, that’s a lot of lines that show you the difference between other lines! Basically, this is going to show you how the current trends compare with historical trends, and how strong the current trends are. This helps you see what the trend is (and thus whether you should go short or long), and whether the trend is speeding up or slowing down.

If the shorter time period is higher than the longer time period on the graph, that means the price is trending upward, and you should enter a long position. If the longer time period is higher, that means the price is trending downward, and it’s time to enter a short position. When the bars of the histogram reach a peak, that means the trend is accelerating. 

Used for:

• ☑️ Determining a trend 
• ☑️ Determining momentum of a trend

Relative Strength Index (RSI) 📇

Relative Strength Index is a momentum oscillator that will show you just how big the latest price changes have been. It’s mostly used to help you determine whether an asset is overbought or oversold. The index is a line that moves between 0 and 100 based on a price’s fluctuation. The higher the line, the more bullish closes are occurring; the lower the line, the more losses. 

Anything above 70 is considered overbought, which could mean that an upward trend is going to start moving downward. Anything below 30 indicates the market is oversold, which means that a downward trend could soon start moving upward. 

Used for:

• ☑️ Determining overbought or oversold conditions 
• ☑️ Predicting trend reversals 

Changes in Volume 🎚️

Trading markets are highly interconnected to each other, across industries, and to regulations, as we see the impacts of the Fed’s changed strategy possibly routing FAANG stocks or ETFs responding to crypto market volatility.

When the volume of trading – or the amount of trades that are happening, measured by the amount of trades or the amount of money changing hands – changes significantly, that’s an indicator that a trend is just getting started. It might be because of some event that has triggered a rush to buy or sell – but regardless, it means something’s happening.

Many charts in the best apps for trading stocks and other assets will automatically show you volume below the main price chart. The change in volume can show you whether a new trend really has legs. A stronger trend will have a higher volume of traders. 

Volume is an especially important indicator when the price of an asset reaches a new high or new low, past the previous lines of support and resistance. A breakout point plus high volume indicates a strong new trend.

Used for:

• ☑️ Determining the strength of a trend

Stochastic Oscillator 🌊

If you liked the goals of the Relative Strength Index but you weren’t too sure about the vibes, the Stochastic Oscillator might be a good alternative for a momentum indicator. Basically, here we compare the asset’s closing price to its other closing prices over a certain period of time.

The Stochastic Oscillator operates on a chart from 0-100. Under 20 typically indicates oversold conditions, while above 80 indicates overbought conditions. Here we have two lines: one is the real-time value of the stochastic, and the other shows a moving average, usually over a three-day period. If you see these two lines cross, that might mean a trend reversal is imminent. 

Used for:

• ☑️ Determining overbought or oversold conditions
• ☑️ Predicting trend reversals

Bollinger Bands 📈

The Bollinger Bands are another momentum indicator – but instead of one line, we’ve got three lines, so triple the fun! One of those lines is a moving average – you remember that from the first indicator we covered. The other two are standard deviations: one positive, and one negative. 

You can quickly see what the trend is from the moving average. Then, the distance between the two standard deviation lines will show you the market volatility – so you can tell that at a glance as well. If they’re close together, it’s less volatile; if they’re far apart, more volatile. 

Many traders will use the intersection of the price with one of the lines as a signal to enter a trade. In general, the expectation is that the price will move toward the center of the band: so if it reaches an extreme, it’s likely to reverse and head back home soon. If the price touches the upper line, that’s a time to enter a short position; if it touches the lower line, that means the price is likely to rebound. 

Used for:

• ☑️ Determining a trend and market volatility at once
• ☑️ Predicting a reversal

Other Handy Tools for Swing Traders 🧰

In addition to these indicators, there are a few key concepts that you should always be scouring your charts for when you’re swing trading. In other words: make sure you know your way around those charts!

Support and Resistance 🤝

The lines of support and resistance are very important to watch. 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. 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. 

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).

Patterns in Charts 📉

These are by far not the only indicators that a price might reverse directions or go through some other major change. There are also plenty of patterns that signal a trend will reverse or continue within the charts themselves, especially as seen in Japanese candlestick charts.

Just a few to get you started:

• ☑️ Wedges indicate an upcoming reversal. 
• ☑️ Pennants indicate the price will soon break out of its support and resistance lines.
• ☑️ Triangles can indicate an upcoming breakout.
• ☑️ Head and shoulders can indicate a bear market, while its inverse can indicate a bullish market.

Where Can I Find Swing Trading Indicators?

With the wide world of technology, there are plenty of brokers and trading apps that will generate charts for you. These should come with all of these indicators (and plenty more!) built into the software. 

If you’re a new trader, you can use the demo platforms on many brokerage sites to start practicing. This can allow you to trade with fake money and see how you do, so you can learn these indicators before you put your hard-earned cash on the line. There is also free charting software available on the web – so get out there and start charting!

Risks of Swing Trading with Indicators ☠️

The stock and forex markets are messy for anyone. Even two regional fed chiefs had to sell off their stocks to avoid a conflict of interest – it’s a complicated world out there. So of course, swing trading doesn’t magically offset all the risks of trading in the financial market.

Remember that while these indicators are powerful, they are not a crystal ball. This is especially true if you are only using one indicator at a time – always make sure to compare your findings across multiple indicators and see if they’re reinforcing each other.

While you want to win as much as possible, accept that loss is going to happen, and you can’t perfectly predict every price reversal or breakout. And of course, keeping an eye on world news such as growing fears the stock market may tumble will always inform what you’re seeing in the charts.

Conclusion 🖊️

So if you’re all fired up to start swing trading – good! By this point, you’ve put in a solid effort toward understanding the major indicators, what exactly they can tell you about the price of an asset, and how to use this information to make an informed decision. 

Remember, these indicators work best together, so always double check your predictions across multiple indicators. And this is just the beginning – there’s always a rabbit hole to go down in learning more technical indicators. So keep this article handy, get out your brokerage app, and start swinging! 

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Rating

8.0/10 Visit Robinhood on Robinhood's website

8.0/10 Visit TradeStation on TradeStation's website

Fees

Account minimum

$0

$0

$0

Minimum initial deposit

$0

$0

TS Select: $2,000

TS GO: $0

Commissions

Vary

$0

$0

General

Best for

Active traders

DIY stock trading

Active options and penny stock trading

Highlight

Huge discounts for high-volume trading

Pioneer of commission-free stock trading

Powerful tools for professionals

Promotion

Free stock

50% Off Future

Rating

8.0/10 Visit Interactive Brokers on Interactive Brokers' website

8.0/10 Visit Robinhood on Robinhood's website

8.0/10 Visit TradeStation on TradeStation's website

About the author

Tim Fries

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Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.