Swing Trade Indicators
Moving Averages (MA)
Moving averages are one of the most common and useful swing trading indicators. They smooth out price data to identify the direction of the trend. The most popular types of moving averages are the Simple Moving Average (SMA) and the Exponential Moving Average (EMA).
Simple Moving Average (SMA)
The SMA calculates the average of a selected range of prices, usually closing prices, by the number of periods in that range. For example, a 20-day SMA sums up the closing prices of the last 20 days and divides by 20.
Exponential Moving Average (EMA)
The EMA gives more weight to recent prices, making it more responsive to new information. This can be particularly useful for swing traders who need to quickly respond to price changes.
Relative Strength Index (RSI)
The RSI is a momentum oscillator that measures the speed and change of price movements. The RSI oscillates between 0 and 100 and is typically used to identify overbought or oversold conditions. A reading above 70 suggests that a stock may be overbought, while a reading below 30 indicates that it may be oversold.
Moving Average Convergence Divergence (MACD)
The MACD is a trend-following momentum indicator that shows the relationship between two moving averages of a security’s price. It consists of the MACD line, the signal line, and the histogram.
MACD Line
Calculated by subtracting the 26-period EMA from the 12-period EMA.
Signal Line
A 9-period EMA of the MACD line plotted on top of the MACD line, which can function as a trigger for buy and sell signals.
Histogram
It represents the difference between the MACD line and the signal line. When the histogram is above zero, it indicates a bullish trend, and when it is below zero, it indicates a bearish trend.
Bollinger Bands
Bollinger Bands consist of a middle band being an N-period moving average, and two outer bands that are N-period standard deviations away from the middle band. These bands adjust to volatility: they expand during periods of high volatility and contract during periods of low volatility.
- Upper Band: SMA + 2 standard deviations
- Lower Band: SMA - 2 standard deviations
Fibonacci Retracement
This tool is used to identify potential reversal levels by plotting horizontal lines at key Fibonacci levels (23.6%, 38.2%, 50%, 61.8%, and 100%) between a high and low point. The idea is that price may retrace a predictable portion of a move, after which it continues in its original direction.
Stochastic Oscillator
The stochastic oscillator is another momentum indicator that compares a particular closing price to a range of prices over a certain period of time. The sensitivity of the oscillator to market movements can be reduced by adjusting the timeframe or by taking a moving average of the result.
- %K: The current closing price compared to the high/low range over a specific period.
- %D: A moving average of the %K.
Average Directional Index (ADX)
The ADX measures the strength of a trend and helps traders identify the strongest and most profitable trends to trade. The ADX is often used in conjunction with +DI and -DI lines, which help measure trend direction.
On-Balance Volume (OBV)
OBV is a volume-based indicator that measures the buying and selling pressure. It adds volume on up days and subtracts volume on down days. The theory is that volume changes precede price changes, so OBV can provide insight into potential movements.
Parabolic SAR
The Parabolic SAR (Stop and Reverse) is a trend-following indicator that identifies potential reversals in the market. When the price is above the SAR, the trend is considered bullish, and when below, it’s considered bearish.
Ichimoku Cloud
The Ichimoku Cloud, or Ichimoku Kinko Hyo, is a comprehensive indicator that defines support and resistance, trend direction, and momentum all in one view. It consists of five lines, the most important being the “cloud” or Kumo, which projects future support and resistance levels.
Commodity Channel Index (CCI)
The CCI is a versatile indicator that can be used to identify a new trend or warning of extreme conditions. It measures the current price level relative to an average price level over a given period.
Volume-Weighted Average Price (VWAP)
VWAP provides the average price a security has traded at throughout the day, based on both volume and price. It’s commonly used by institutional traders to gauge trading efficiency.