Swing trading is a popular style of trading that involves using major market movements instead of just capitalizing on intraday volatility. However, it requires that you hold positions open for days, weeks, or even months, so you definitely have to know when to enter and what to expect. That’s where technical analysis comes in handy, and there are several indicators which are considered especially suitable for such a trading style. In this article, we explain how to use the top 3 most useful of them.
Choosing the right indicators
While swing trading involves holding positions for much more than a single trading session, the basic rules are still the same: you have to predict how the price of a certain asset is going to behave, find a good spot to enter, and then close the position at the right time. That means your choice of indicators should follow the overall principles: don’t try to read too many at once, be careful about time horizons, and look only at the indicators you can understand.
The last principle is especially important. You will be better off with just a single primitive indicator than with a bunch of complex ones which you don’t know how to use. That’s why we’ve selected these top three swing trading indicators that can be easily learned.
Volume
Volume is an extremely simple indicator that shows the number of finished trades over a given period of time. This indicator is used to confirm trends: if a break-out happens with many trades going on, the trend is likely to continue. And if the price moves down with high volume, it probably will go down even more.
Moving average
Moving average (MA) is another novice-friendly indicator that smoothes the price graph and presents it as a continual trend line. MA is mostly used to determine the best points for entry and exit. The most common way to use the indicator is comparing a shorter period line with a longer period one. A signal for buying the asset is produced when the former cuts the latter from below.
Relative strength index
Relative strength index (RSI) is used to measure the relative strength of price movements. It’s a graph between 0 and 100, and a signal is generated when it reaches 30 or 70. When it goes above 70, then it’s a sell signal. When it goes below 30, it’s a buy signal. However, you should be especially careful about time horizons with RSI.