Swing trading is probably one of the most popular trading strategies that differ from day and position trading. While using this strategy, traders use technical analysis tools, including Candlestick pattern, market trends, and probable trend reversal in a short timescale.
Swing trading differs from day trading strategy as it entails keeping a trading position for a few days to a few weeks, whereas day trading involves purchasing and selling of assets on the same day.
Now that you have read what swing trading is all about, it’s time to talk about the Best Indicators for Swing Trading that traders use to maximize their profits. To understand further, first learn – What is Swing Trading?
What is Swing Trading?
Swing trading is a kind of market strategy that focuses on profiting from even minor price movements within a larger trend. It is based on the idea that price motion is rarely linear but rather oscillates due to the tension between bulls and bears. Swing traders look for profit chances in these fluctuations.
Swing trading allows profit-taking over a shorter timescale by focusing on the instances where momentum changes direction. Swing traders, like day traders, seek to profit from both positive and negative movements.
On the other hand, Swing trading is not constrained by the day-trading rule that all positions must be closed by day end. Instead, they hold transactions for as long as the present trend continues. It might take as little as an hour or as long as several days.
There are two types of Swings:
When a market reaches a low and then rebounds back, allowing for a long-term trade, it is referred to as swing low.
When a market reaches a high point before backtracking, allowing for a short-term trade.
What is a Swing Trading Indicator?
After clearing the basics of Swing Trading, now it’s time to understand – What is a Swing Trading Indicator? Here’s all you should know about this trading tool.
Swing trading indicator is a type of technical analysis tool that can help you find new trading opportunities. In this, traders look to profit on minor trends that develop between highs and lows (and vice versa). They use indicators because they need to find new momentum as soon as possible.
A swing trader will utilize indicators to detect two sorts of opportunities: trends and breakouts. Longer-term market fluctuations with short-term oscillations are referred to as trends.
On the other hand, breakouts signal the start of a new pattern. Apart from Swing trading, Indicators can be used on any market, including Stocks, Indices, Forex, etc.
Which are the Best Indicators for Swing Trading?
Swing traders look for trading opportunities on underlying assets using a variety of indicators. While advanced and sophisticated indicators are used by professional traders, we will discuss some of the basics to help novice investors get started with swing trading.
Let’s start with 5 Best Indicators for Swing Trading:
Ease of Moment (EOM):
Ease of movement is a swing trading indicator that shows the link between the rate of change in an asset’s price and its volume. It’s mostly used on the daily chart and in more extended periods.
This EOM indicator is represented on a graph with zero as the starting point. When it increases over 0, it indicates that the market’s price is rising with relative ease, and the higher the EOM increases, the more readily the price will rise. When the EOM falls below zero, it means the market is sliding down with more ease.
Relative Strength Index (RSI):
The RSI indicator is quite popular among swing traders because it reveals possible oscillations into a broader trend. It is one the most extensively used indicators, which indicates whether a market is overbought or oversold — and hence if a swing is imminent.
The RSI counts the frequency of positive and negative closes in a market over a certain number of periods (usually 14). It’s represented by an oscillator, which is a chart that starts from 0 and ends on 100.
Anything above 70 is considered overbought, which signals the start of a short trade. Meanwhile, when the RSI slides below 30, it is considered to be oversold. This is frequently considered as a signal to go long.
Suppose, if a market is in an uptrend but the RSI increases over 70, the market can be on the verge of becoming a bear market. Although, if its RSI continues low, the trend may be poised to continue.
Moving Averages (MAs):
Moving averages smooth out any irregular short-term surges by taking the average stock values over a specific time. They’re often known as lagging indicators as they don’t look back at previous price activity. As a result, Moving Averages are mainly utilized for trend confirmation and swing trading.
Moving averages are classified as short-, medium-, or long-term depending on the number of periods, such as 50 or 200 days. Apart from this, there are two types of moving averages–
- Simple Moving Averages: It averages all of a period’s closing prices.
- Exponential Moving Averages: It gives greater weight to the price that is closest to the present date.
After going through the fundamentals of moving averages, let’s look at how to use the MAs indicator in swing trading.
This indicator is used frequently when a market’s short-term Moving Average crosses a longer-term Moving Average, suggesting a change in momentum.
A bull move is indicated when a quicker Moving Average crosses a slower Moving Average from below. Conversely, the momentum will likely become bearish when a quicker Moving Average crosses a slower one from above.
Most swing traders favor volume indicators because it gives them insight into the strength of a new trend. The fundamentals of this indicator are simple: a trend with a large volume will outperform one with a low volume. There is a more significant basis for price activity when more trading takes place.
Volume is particularly the best indicator. This is because breakouts usually occur after a period of consolidation marked by low volume. The volume then explodes as the breakout takes hold.
Let’s take a look – at how to use a volume indicator in Swing Trading:
When the asset price rises in a positive market, there should also be an increase in volume, showing the existence of actual buyers, according to the rule of thumb.
A price change without a volume change isn’t an actual trend change. Before a trend reversal, the market usually sees a surge in volume. Using volume divergence, traders search for price fall against volume to predict a bullish trend.
They seek two successive price falls that are weaker than the first and are accompanied by lesser volume increases. It indicates that negative momentum diminishes as sellers fail to drive the market below the initial drop.
It is a kind of momentum indicator that works just like the RSI. It compares a closing price of the market to the range of its prices over a particular time period.
The stochastic oscillator, just like the RSI, is shown on a chart with a range of zero to 100. In this indicator, a value of more than 80 is considered overbought, while a reading of less than 20 is considered oversold.
The Stochastic Oscillator has two lines, unlike the RSI. One indicates the oscillator’s present value, while the other shows a 3-day moving average.
Strong trends can continue in either region for a long time, so an overbought or oversold signal doesn’t always imply a reversal is imminent.
As a result, many traders keep an eye out for when the two lines of a stochastic oscillator cross each other, seeing this as a warning that a reversal is approaching.
What is the Difference Between Day Trading and Swing Trading?
To profit from trade is the ultimate goal of both day and swing traders. However, there’s a huge difference between Day trading and Swing Trading. Traders that make numerous round trips of at least four trades within five days are considered day traders, according to the FINRA’s rule of PDT.
Because day traders do not keep their holdings overnight, they are frequently looking to profit in a short time. On the other hand, traders acquire assets and hold them for several days or weeks in Swing Trading. Swing traders recognize that a deal will take a long time to complete. Thus, they do not trade for the entire day.
The pattern is the most significant distinction between day traders and swing traders. Swing traders take positions based on market movement in order to profit more. At the same time, day traders look for stocks that gain or lose during the trading day based on various technical, quantitative, and fundamental studies.
Which are the Best Brokers for Swing Trading?
The success in the Swing Trading strategy depends on several aspects, one of which is selecting the best broker for swing trading. To sort out the things, we have listed two of the best brokers on the internet. Take a look!
ABInvesting is one of the leading trading brokers that can assist you in achieving huge success. The broker offers WebTrader and MT4 platforms, which are the most effective and high-quality online trading platforms available.
Furthermore, ABInvesting provides many valuable tools that make swing trading simple yet extremely rewarding. The broker offers trading platforms on desktop, web, and mobile applications.
Another player in our list of best brokers for Swing Trading includes InvestBy. Swing traders will benefit from the broker’s top-of-the-line trading platforms (MT4) and strong tools.
You can use the broker’s platform to optimize, create, test, monitor, and automate trading strategies. The broker also has several other features that make it one of the top trading brokers available on the internet today. Open your demo account with Investby.
In the end, it can be right to say that swing trading is ideal for traders who do not have the time to sit in front of a trading screen for the whole trading day. Moreover, this strategy can be profitable if done correctly with a sound strategy and risk management.
In addition, unlike a long-term investment, swing trading does not need to put one’s wealth in a terrible company for an extended period of time. If a trade doesn’t go well, one can simply suffer a loss and relocate their money to another stock. So, it is quite better than day trading in some aspects.
Is Swing Trading suitable for Novice traders?
Yes, swing trading is suitable for novice traders. It needs less skill and knowledge. If you are not a full-time trader, swing trading is your next best alternative since it does not require you to be hooked to your computer screen all day.
Is Swing Trading better than Day Trading in terms of profit?
Day trading, on average, offers a higher profit potential than swing trading. For example, assume you’re a day trader who puts 0.5 percent of your cash at risk with each trade. You will lose 0.5 percent if you lose, but you will gain 1 percent if you win (a 2:1 reward-to-risk ratio).
Why do the majority of Swing Traders lose money?
Swing Traders often lose money due to a lack of capital. You’ll need enough capital to position correctly and achieve your objectives. If you’re undercapitalized, you can’t position size adequately (in most markets), and you’re more likely to lose concentration as profit comes too slowly.
Is Swing Trading a difficult strategy?
For new traders, swing trading can be challenging. On the other hand, professional traders have more outstanding expertise, leverage, information, and knowledge about the market.