If you are interested in swing trading, one of the first things you may wonder, especially if you have been studying technical analysis and interpreting stock charts, is how to determine the best technical indicators for swing trading.
While there are no hard and fast rules, and of course it is especially important to remember what works for one person may not always work for another – there are some popular technical indicators that many people use to successfully identify a potential stock for swing trading and to develop their own swing trading strategy.
Understanding the Three Main Types of Swing Trading Strategies
In order to come up with the best technical indicators for swing trading, you must first determine what strategy you want to implement.
There are three general ways one might consider swing trading. These certainly aren’t the only methods or systems, but they are relatively popular and you are sure to encounter these beliefs at some point while doing your research and studying swing trading technical analysis.
Here are Some Popular Swing Trading Strategies and Their Corresponding Technical Indicators for Swing Trading
Trending Stocks & Industries
This trading strategy is to find stocks or ETFs which are trending and have a lot of price action activity and movement. If this is your strategy for finding which stocks to swing trade, you will likely want to study and analyze moving averages, the ADX Indicator (Directional Movement Index), the MACD (Moving Average Convergence Divergence), and other trend lines based upon your stock chart analysis.
Volatility Trading Strategy
Another popular method of finding stocks to swing trade is to choose stocks based on their volatility. The most common indicators for measuring this are Bollinger Bands and the ATR (average true range) or other indicators that provide data to properly analyze volatility.
Overbought and Oversold Strategy
This is another common strategy in where you might choose stocks based on whether they are being overbought or oversold. For this strategy, the best technical indicators to help you determine your stock picks tend to be the RSI (relative strength index), ROC (rate of change) and stochastics (an indicator which compares closing price to its price range over a given period of time).
Always Do Your Homework and Research
With any type of technical analysis, it is important to remember these indicators may or may not give you the results you desire. It is extremely important to not confuse when to use certain indicators – for example using the indicators for trends may not give you the desired results if the stock should instead be analyzed using the overbought/oversold strategy.
Doing your own due diligence and research will help you to formulate your own best swing trading strategy and help you better understand the basics of using technical indicators.
Do you have any thoughts on what make for the best technical indicators for swing traders? Share your ideas and comments below!