Best Indicators for Swing Trading

Welcome to the thrilling, adrenaline-packed world of swing trading. If you’re reading this, trading on the market has likely already piqued your interest, regardless of whether you’re a novice or a pro. So, we’re going to tell you some of the best indicators for swing trading and how to use them to maximize your profits.

But, before we let you in on these helpful, technical indicators for swing trading, we need to cover what this popular trading method is. 

Swing trading: In a nutshell

Swing trading is a trading strategy that involves buying and selling assets, such as stocks or currencies, over a short period– usually a few days to a few weeks. The goal is to buy stocks when they’ve dropped in price during an uptrend and sell them when they rise again before the trend changes direction.

With this said, swing trading works on the principle that stock prices don't move in a straight line. Rather, the constant interaction between buyers and sellers creates market oscillations. As a result, savvy swing traders take advantage of these oscillations by turning them into profit-making opportunities.

It’s like riding a wave

An easy way to understand swing trading is to think of it as catching a wave in the ocean. Waves in the ocean are like trends in the stock market. Meaning you want to ride a wave for a little bit but then jump off before it crashes. So, in essence, swing trading is all about making big profits by jumping on board with the current trends. As the influential investor Martin Zweig said, “The trend is your friend.”

But how do you know what waves to jump on and how long to ride them before they crash? You need to know how to use the best indicators for swing trading to help you identify “swings” in the market.

How to leverage the “swings” in swing trading

The "swings" in swing trading are the price movements of a stock or other financial instrument over a short period. These swings can be caused by a variety of factors, such as market trends, news events, or economic indicators. You can use these swings to make profits by buying and selling at the right time. For example, if a stock has been trending downward for a few days, you might buy it at a low point and then sell it a few days later when it's gone up in value. On the other hand, if a stock is trending upward, you might sell it at a high point and then buy it back when it's lower. 

The key is to identify these swings through technical analysis and market research by using swing trade indicators. Indicators for swing trading are technical analysis tools that traders use to find new opportunities, and then make profitable trades. So, let’s go over some swing trading indicators to help you capitalize on this exciting trading style.

What are the best indicators for swing trading?

By leveraging effective swing indicators, traders can accurately anticipate the future movements of a stock. This is because these indicators enable traders to differentiate between bullish and bearish trends and gauge the momentum behind them. As a result, this helps them choose the most favorable stocks for trading and find optimal entry and exit points for their trades. 

We’ve listed six of the best indicators for swing trading below. We’ll dive into each one so you’re well-equipped to get swingin’ in the market.

1. Moving Averages (MA)

Moving averages (MAs) smooth out short-term price spikes by calculating the mean of a market's price movements over a given period. They’re lagging indicators that confirm trends rather than predict them.

To fully understand moving averages, you need to know the two types: simple moving averages (SMA) and exponential moving averages (EMA). While both are significant, EMAs are particularly valuable as they’re more recent and can give you a better idea of what's currently happening in the market.

How to use MA

This swing trading technical indicator is used to track crossovers, where a short-term MA intersects a longer-term MA. Technical traders believe that these crossovers indicate a shift in momentum. Thus, a faster MA crossing a slower MA from below suggests a potential bull move, while a crossing from above may indicate a bearish momentum shift.

2. Moving Average Convergence Divergence (MACD)

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.

How to use the MACD

Using the MACD indicator for swing trading to decide when to buy or sell is pretty simple. If the MACD line crosses above the signal line, it's a sign to buy. If it crosses below, it's time to sell.

You can also use the MACD to predict when a trend might be ending. To figure out when a trend may be coming to a halt, look for a difference between the histogram and price action. 

3. Relative Strength Index (RSI)

The relative strength index (RSI) has a reputation for being one of the best indicators for swing trading. This is because it does an excellent job of highlighting potential oscillations within a trend. The RSI measures positive and negative closes over 14 periods and ranges from zero to 100 as an oscillator, indicating whether a market is overbought or oversold and suggesting a possible swing ahead.

How to use the RSI

An RSI reading above 70 is often seen as overbought and may suggest a short position, while a reading below 30 is viewed as oversold, potentially indicating a long position. So, you can use RSI readings as swing trading signals. For example, if a market is in an uptrend and the RSI surpasses 70, the trend may shift to a bear market. But, if the RSI remains low, the trend could persist.

swing trading indicators

4. Bollinger Bands (BB)

Bollinger Bands fall among the best technical indicators for swing trading because they let traders check how high or low a stock’s price is compared to past trades. As a result, BB helps traders understand how much the market is changing, and if the stock is overbought or oversold.

How to use BB

Bollinger Bands aren't just for trending markets. They're also great for when the price is moving up and down in a horizontal channel. When the price ranges inside a horizontal channel, you can use the BB to decide when to buy or sell. If the price touches the upper line, it can indicate a wise move to sell. On the other hand, if the price touches the lower line, it usually signals a smart move to buy.

5. Stochastic Oscillator

The stochastic oscillator is a momentum indicator that compares a market's closing price to its range over a certain period. It's represented on a chart of 0-100, with readings above 80 indicating overbought conditions and below 20 indicating oversold conditions. It has two lines: the current value, known as the %K line, and a three-day moving average, known as the %D line.

Ranking as one of the best stock indicators for swing trading, every swing trader should know how to read the stochastic oscillator.

How to use the stochastic oscillator

To use the stochastic oscillator in swing trading, traders typically look for oversold or overbought conditions. When the %K line crosses below 20, the stock is considered oversold, which may indicate a buying opportunity. Conversely, when the %K line crosses above 80, the stock is considered overbought, which may indicate a selling opportunity.

6. Volume

Volume is a key tool used in swing trading technical analysis that gauges the strength of a new trend. Simply put, higher volume indicates a stronger trend as more traders are involved in the price action.

How to use the volume swing trade indicator

Volume can help traders determine whether a breakout is strong or weak. For instance, if a high number of people are buying or selling a stock, it means the new trend is expected to be a big deal. In other words, it signals to traders that they need to start paying attention to it.

Okay, so now you know what some of the best swing trade indicators are. But how do you know which indicators to use for swing trading will be the most helpful?

Choosing the best indicators for swing trading

Choosing the right tools for swing trading is crucial to making informed decisions and maximizing profits. But, unlike the popular bubble shirts of the late 90s, there’s no one-size-fits-all solution. 

The best swing trading technical analysis indicator for you depends on your level of expertise, trading style, and risk tolerance. A great tip for the novice trader is to start with a simple indicator like moving averages and then gradually work your way up to more complex tools like the MACD or BB.

Best indicators for swing trading: Final thoughts

With the right tools in your arsenal, swing trading can be a thrilling and lucrative endeavor. The best way to learn the ins and outs of this trading strategy is to get out there and start playing the game. So, use the indicators we've discussed to identify trends and make better, more informed decisions the next time you ‘swing’ into the market.

Back to Blog