The 6 Best Swing Trading Indicators You Must Know

Swing trading is one of the most common trading styles, along with day trading and position trading. For beginners, it might be the optimal trading approach since its pace is slower than day trading, which gives traders more time to monitor every position and find the best entry points.

In swing trading, the positions are held overnight and can stay open for days or weeks. In the following lines, we’ll discuss the most popular swing trading indicators used in cryptocurrency trading. All of them have been borrowed from forex and stock trading, which proves their versatility.

Swing trading indicators are technical analysis tools that highlight specific aspects of the price action to improve traders’ decision making. All technical indicators analyze the price from various perspectives based on historical data, so it would be inaccurate to say that they can predict the future.

What Is A Swing Trading Indicator?

A swing trading indicator is a piece of analysis tool that uses mathematical calculations to determine various aspects of the price action based on historical data. We call a swing trading indicator any technical analysis indicator implemented on a daily chart or any other chart used by swing traders to assess the market situation.

Technical analysis indicators help traders figure out whether the trend is bullish or bearish and whether it has momentum, among others. While some swing traders use to trade the news and rely on fundamental analysis, technical indicators are imperative to determine the best entry and exit points. Ultimately, a swing trader uses these indicators to formulate or identify the perfect strategy to maximize profits.

The three most important types of swing trading indicators are the following:

  • Trend indicators – these indicators show you which direction the market is going and whether we can distinguish a trend at all. Generally, trend indicators are used to smooth price volatility to highlight the primary trend. Moving averages are the most well-known example of trend indicators.
  • Momentum indicators – momentum indicators show how strong a trend is and whether a reversal might be on the horizon. They can also show the overbought and oversold levels. The most famous examples of momentum indicators are the Relative Strength Index (RSI).
  • Volume indicators – volume is an important indicator that shows how many traders are buying and selling an asset at any given time.

Understanding How Swing Trading Works

Before getting more in-depth with analyzing the best indicators for swing trading, let’s go back to the swing trading process.

Swing trading is a trading style that comprises various strategies and behaviors that share some common aspects closely related to the time of a trade. While it is typically applied in forex and stock trading, it can go well with cryptocurrencies too.

With swing trading, you will hold your position open for several days or weeks, as long as the trend carries on in your favor. Traders would be interested in closing their position when the trend shows signs of reversal. Given that swing traders operate with larger timeframes, they are not interested in the short-term price volatility the same as day traders do. For swing traders, the only thing that matters is that swing highs go higher in a bullish market while swing lows go lower in a bearish market.

Swing high and low as part of swing trading indicators.

What Are Swing Highs?

Swing highs are consecutive peaks touched by the price before fleeting moments of retracement. Sometimes the retracement can turn into a trend reversal, which breaks the consecutiveness of the swing highs. When the current swing high is higher than the previous peaks, we can distinguish a general uptrend.

What Are Swing Lows?

Swing lows are consecutive lows that succeeded by the temporary moments of rebounds. When the current low is lower than the previous ones, we can determine a general bearish trend.

Some swing traders prefer to trade between swing highs and lows only, which usually becomes a shorter-term version of swing trading.

The Importance of Swing Trading Indicators

While swing traders don’t rely on technical indicators as much as day traders do, there is no doubt that they can’t succeed without them. Swing trading indicators are fundamental and make up the essential tools in the arsenal of a trader.

Using a reliable technical indicator or a combination of them can increase trading signals’ accuracy by multiple times. Trading without indicators is like walking with eyes closed.

Best Swing Trading Indicators

We have compiled the best swing trading indicators that stand out due to their simplicity and efficiency of trading signals. However, it’s worth mentioning that in no way can they guarantee you consistent profits. That’s mainly because technical indicators don’t predict the future but help you better visualize the present and past. 

Here are the six most popular and reliable technical indicators used in swing trading:

1. Relative Strength Index (RSI)

Relative strength index (RSI) chart as an analytic indicators for swing traders.

The RSI one of the most important crypto trading indicators. As a momentum oscillator, and you may find it under the category of ‘oscillators’ on your chart. It calculates the size and magnitude of the latest price changes. Swing traders use the RSI mostly to determine the overbought and oversold levels.

The indicator is displayed as an oscillator, i.e., a line graph that moves between two extremes and can range between 0 and 100. The RSI line ascends when the number and size of bullish closes go up, and it declines when the magnitude of losses increases.

The most straightforward RSI signal occurs when the indicator breaks above the 70 levels; it suggests an overbought level and might anticipate an uptrend’s reversal. If the RSI enters the zone below the 30 marks, then it indicates an oversold market, meaning the bearish trend could end soon.

Another way to use the RSI is to look for centerline crossovers. For instance, when the indicator breaks above its centerline, it points to a rising trend.

2. Moving Averages

Moving average technical indicators  chart visualization.

Moving averages (MAs) are the first technical indicators that have been used for decades in the analysis of commodities and company shares. As the name suggests, they calculate the average of an asset’s price movement over a given period. As a result, MAs smooth out the short-term volatility that may confuse traders.

It’s important to understand that MAs are lagging indicators and rely on past price action. Thus, it would help if you used them to confirm a trend rather than predict future moves.

We can distinguish between short-, medium- and long-term MAs, depending on how many periods they monitor. For example, short-term MAs have a period between 5 and 50, while medium-term MAs have up to 100.

There are two main types of MAs: simple moving averages (SMAs) and exponential moving averages (EMAs). The latter emphasizes the more recent price action.

The best way to use MAs is to look when a short-term MA crosses a longer-term MA. If the former crosses the more extended MA from bottom to top, this is a bullish signal, and vice versa.

3. MACD

MACD complex technical indicator.

Moving Average Convergence Divergence (MACD) is a more complex technical indicator that merges two regular moving averages that we discussed above. The calculation of MACD is by subtracting the 26-period EMA from the 12-period EMA, though these parameters can be adjusted manually based on your needs. To be clear, the two lines displayed on the MACD chart do not represent the two MAs used for the calculations. Instead, here are the three elements of the MACD indicator:

  • The MACD line, which calculates the distance between two MAs;
  • The signal line, which can spot changes in price momentum and is regarded as a trigger for bullish and bearish signals;
  • The histogram, which represents the difference between the MACD line and the signal line.

Swing traders would usually buy when the MACD line crosses above its signal line and go short when the MACD crosses below the signal line.

Another way to use the MACD is to look for divergence between the histogram and the price action, which usually anticipates a trend reversal.

4. Volume

Volume uptrend indicator.

Volume is one of the most critical indicators for swing traders, though beginners often ignore it. This indicator can be shown by default below the main chart, and it offers insight into how robust is a newly formed trend. Basically, the volume indicator shows how many traders are buying or selling a cryptocurrency or asset at a given point. Thus, the higher is the volume, the stronger the trend.

Volume is especially useful with breakout strategies, i.e. when an asset’s price breaks above a resistance line or below a support line. If the breakout is accompanied by high volume, then the new trend is expected to be substantial.

5. Bollinger Band

Bollinger band indicator in swing trading.

The Bollinger Band (BB) is a momentum indicator that consists of three lines – a moving average and two standard deviations, a positive and a negative one. Swing traders prefer this indicator because it quickly detects a trend, the overbought and oversold levels, and the volatility. Also, it looks nice and clear on the chart.

The width of the BB increases along with the volatility and declines when the market calms down. The closer the bands are to each other, the lower the volatility.

While Bollinger Bands work well in trending markets, they do a great job when the price ranges, i.e., moving up and down inside a horizontal channel. In this case, when the price touches the BB’s upper line, swing traders may go short. When the price touches the lower line of the indicator, this may precede a rebound. 

The point is that the price would always tend to move towards the center of the BB. If the band starts expanding, it means that a new trend is forming, and you shouldn’t be trading in a range anymore.

6. Stochastic

Stochastic momentum indicator.

Stochastic is another momentum indicator, and it works quite similarly to the RSI, though it has different calculations. The indicator compares the closing price of an asset to the range of its prices over a certain period.

Like the RSI, the Stochastic is represented by a chart between zero and 100. Though in this case, the overbought and oversold zones are above the 80 lines and below the 20 lines, respectively. 

Another different aspect is that it consists of two lines rather than just one as in the RSI. One line shows the current value of Stochastic, and the other one is a three-day MA.

Traders would use Stochastic to determine the overbought and oversold levels. They will also look for the two lines to cross, which generally anticipates a trend reversal.

Best Swing Trading Tools To Use

The described trading indicators can do a great job of providing relevant signals, but they will become even more efficient if you combine them with other chart tools. Here are some of them:

Resistance and Support Lines 

A swing trader should always operate with resistance and support lines since it’s the most relevant when determining an asset’s price point that has had trouble exceeding in the period. In short, Resistance is an imaginary line that the price finds challenging to break and usually bulls back. The support is an imaginary line made of recent lows, which shows the price stops declining and bounces back. If there’s a breakout within these lines, the price usually moves in the breakout direction.

Patterns

Swing traders can also look for chart patterns, usually observed on candlestick charts. There are two main categories of patterns:

  • Trend continuation patterns, which anticipate the continuation of a trend. Some examples are triangles, rectangles, flags, and pennants.
  • Trend reversal patterns, which signal the reversal of a trend. Some examples are double tops or bottoms and head and shoulders.

When to Start Using Swing Trading Indicators?

Any traders should start using swing trading indicators before opening any position. Generally, you will look for good entry points by using swing trading indicators.

It would also be best if you used the indicators to monitor the positions while they are open. By doing this, you can exit the market at the right time and take the maximum profits.

Final Thoughts

Swing trading might be the ideal trading style for beginners, and the indicators can help traders benefit from the price volatility.

However, even though the price moves in swing trading are idle, you should not ignore the basic risk management techniques. By using a stop loss, you can prevent your balance from being wiped out.

Some traders might feel that these indicators don’t work as they expect. Still, technical indicators were not designed to forecast futures price moves with 100% accuracy but to help you make better decisions based on in-depth market insights. 

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