4 of the Best Indicators for Swing Trading

Are you intrigued by the world of trading but overwhelmed by the rapid-fire intensity of day trading or the long-term commitment of buy-and-hold strategies? Then swing trading might be the perfect trading style for you.

Swing trading is an increasingly popular choice among traders for its balanced approach. We’ll define the concept, explore swing trading strategies, and lay out four of the best indicators for swing trading.

What is swing trading?

Unlike the frantic pace of day trading or the extended time frames involved in long-term investments, swing trading offers a balanced middle ground. It’s less intimidating and hectic, but it can yield substantial returns.

Swing trading typically involves holding positions for several days to a few weeks, but it sometimes extends to a couple of months. This duration allows traders to capitalize on short to medium-term price fluctuations, making it a flexible strategy in both bull and bear markets.

Some swing traders use options to enhance their strategies by managing risk, leveraging their positions, or generating additional income. However, swing trading options is a somewhat advanced technique, leading many traders to opt for straightforward stock or currency trading without involving options.

How swing trading works

Swing trading is all about identifying potential entry and exit points. Swing traders seek opportunities when they believe an asset’s price is poised to fluctuate. These traders often use technical analysis to identify patterns, trends, and indicators that help them make informed decisions. (More on this below.)

When entering a swing trade, traders usually set specific price levels for stop-loss and take-profit orders. Stop-loss orders are designed to limit potential losses by automatically exiting a trade if the price moves beyond a certain point. Take-profit orders, on the other hand, specify a price level at which the trader will lock in profits and exit the trade. These trades can be automated for an efficient, hands-off approach.

A primary advantage of swing trading is that it doesn’t require constant monitoring of the markets. Traders can hold their positions for several days or weeks without being tethered to their trading screens. This reduces the stress associated with trading and makes it accessible to traders who may not have the time or energy for day trading.

What is a swing trading indicator?

A technical indicator is a calculation intended to forecast market movement. Indicators help traders predict ideal entry and exit points based on previous trading prices and volumes.

Swing trading indicators can take various forms, including oscillators, moving averages, and volume-based metrics. Each has unique characteristics, but the best stock indicators provide traders objective data to support their strategies.

These indicators can be used individually or in combination, depending on your preferences and trading plan.

4 of the best swing trading indicators

Here’s a detailed look at some of the most widely used and trusted swing trading indicators:

1. Relative strength index (RSI)

The relative strength index (RSI) is a popular momentum oscillator among swing traders. It calculates the magnitude and size of recent price changes to assess whether an asset is overbought or oversold. RSI values range from 0 to 100, with higher readings thought to suggest overbought conditions and lower readings believed to indicate oversold conditions.

For instance, when an RSI is more than 70, it may signal the asset is overbought and due for a correction, presenting a potential selling opportunity. Conversely, when an RSI drops below 30, it may suggest the asset is oversold and could experience a rebound, offering a buying opportunity.

2. Moving averages (MAs)

Moving averages help traders spot trend reversals and confirm the direction of a prevailing trend. When an asset’s price crosses above its MA, it may indicate an upward trend, suggesting a buying opportunity. Conversely, a price crossing below the MA could signal a downward trend and a selling opportunity.

There are two primary types of moving averages used in swing trading:

• Simple moving average (SMA): The SMA calculates the average price of an asset over a predefined period, giving equal weight to all data points. It’s straightforward and useful for identifying general trends.

• Exponential moving average (EMA): The EMA, in contrast, assigns greater weight to recent price data, making it more responsive to recent market movements. Swing traders often prefer using EMAs to capture short-term trends more effectively.

3. Moving average convergence/divergence (MACD) 

MACD, a related metric, shows the momentum and potential changes in the direction of a price trend, helping swing traders identify entry and exit points. It consists of two lines:

• MACD line: This line measures short-term price momentum by subtracting the 26-period EMA from the 12-period EMA.

• Signal line: A smoothed version of the MACD line, it’s usually represented as a 9-period EMA.

Swing traders use the MACD for:

• Crossovers: Some traders buy when the MACD crosses above the signal line (bullish) and sell when it crosses below (bearish).

• Divergence: When MACD and price move differently, it can signal a trend change.

• Histogram: It shows momentum. A rising histogram means increasing momentum.

• Centerline: Crossings indicate a shift in trend direction.

4. Volume

Volume is an essential indicator for swing traders because it provides insight into the strength and validity of price movements. Volume represents the number of shares or contracts traded during a specific period, such as a day or week. Swing traders analyze volume to gauge market participation levels and the likelihood of trend continuation or reversal.

When an asset experiences a substantial price increase accompanied by high trading volume, it suggests strong buying interest and a potentially sustainable upward trend. Conversely, declining volume during a price rally can indicate weakening momentum and the possibility of a trend reversal.

Swing traders pay close attention to volume patterns to confirm their trading decisions and assess the reliability of price movements.

How to start swing trading with Composer

Swing trading on Composer is simple and user-friendly:

1. Sign up for Composer for free

Begin your swing trading adventure by signing up for a free 14-day trial on Composer. This trial period allows you to explore the platform’s features and functionalities at no cost. Create your Composer account and access a wide range of trading tools and resources.

2. Create a new symphony

Once you’ve signed up and logged in, navigate to the “Create” button located in the top left corner of the platform. Select the “+ New Symphony” option.

3. Select “Create with AI” or use the no-code editor

Composer offers two convenient options for crafting your swing trading strategy:

• Create with AI: Utilize Composer’s AI Tool to streamline the strategy-building process. This powerful tool leverages ChatGPT-4 to assist you in developing a swing trading strategy tailored to your preferences. Explore various metrics within Composer, such as simple moving averages, exponential moving averages, and relative strength index. Customize your trading frequency, whether it’s daily, monthly, quarterly, or yearly.

• No-code editor: Alternatively, Composer provides a user-friendly no-code editor if you prefer a more hands-on approach. This feature enables you to construct your swing trading strategy from scratch, defining the parameters, indicators, and trading frequency according to your specific requirements.

Join Composer today and elevate your swing trading game.