Swing Trading is one of the most famous types of trading because it requires less screen time and analysis compared to intraday trading. However, whether it's an intraday or swing every trader makes use of a few technical indicators for making decisions. There are many types of technical indicators available in the trading platform and other charting websites which provide free tools to analyse the stocks.
It is necessary to filter out a few technical indicators out of 100 which suit your trading style to increase the winning probability of your trades. In this blog, a few of commonly used technical indicators are discussed:-
As we know that, the first step of technical analysis begins with identifying the market trend. The easiest way to identify the trend of any stock is by applying an EMA indicator on the chart. The exponential moving averages are purely price-based indicators that fit well in any kind of market conditions. The 20-day, 50 Day, 100 Day and 200-day EMAs are the most commonly used EMA by traders. If the stock price is trading above the 20,50,100, and 200-day EMA, it showcases an uptrend, and any retracement toward EMA is an opportunity for swing trading. However, the stock price, which has gone far away from the 20-day EMA, can be considered as a little overbought. In these types of scenarios, swing traders must wait for the retracement of the stock back to the 20-day EMA to build new long positions.
The pivot points are leading price action-based technical indicators. There are 4 different types of pivots, but for finding opportunities in swing trading, traders commonly use floor pivots. Pivots are horizontal lines placed in the chart after the market opens. These support and resistance lines are formed based on certain mathematical calculations and past price data is used to analyse future price movements. The median line of this technical indicator is known as the pivot line. If the stock price is trading above the pivot, then the stock is considered bullish, and if the price is below the pivot, then it is considered bearish.
The super trend is a very famous technical indicator among trend followers. It works well when a trader wants to trail the profits of their swing trades. However, it is a lagging technical indicator which helps to give a signal in the chart regarding the trend reversal. When the stock price is above the green line of the supertrend, the sentiment of the stock tends to remain bullish, swing traders often look to buy this setup for buying the stock. Supertrends also help traders trail their profits in the trending market. Till the price sustains above the supertrend buy signal line, traders can easily hold their positions to capture the big price movements.
The volume profile is an advanced technical indicator which analyses the volume of the stock. If the stock has witnessed a higher volume buying at the specific price level, then that price point is considered to be a strong support zone. Swing traders can look for stocks which are trading near to the POC area in Volume profile. If the stock price is trading above the value area high or point of control area, the sentiment of the stock is considered bullish for executing the long trade. Any good opportunity near to the point of control will encourage bullish traders to go long and trail the profit. The stop loss, for any long trade would be the value area low or previous day low of the last session.
The MACD indicator is helpful for getting confirmation of the price reversal. When the stock price reverses upward and the MACD line positively crosses the average line, it generates a bullish signal. Swing traders often look for the MACD crossover bullish setup to enter into the long trade. However, if the MACD displays a negative crossover, then traders tend to exit their existing position for securing the profits. The relative strength index also known as RSI, is also a very famous technical indicator used by many professional traders. If the RSI is near to 30 or below 20, the stock price is considered to be oversold and chances of bounce back increases. Swing traders, look for the opportunity when the stock is oversold to go long. If the stock goes in the favour, then the reward can be very high.
Swing trading can be very beneficial and highly profitable if traders succeed in identifying the opportunity. To identify the opportunity, traders mostly use technical indicators to increase the winning probability of their traders. In the above blog, a few best technical indicators and its implantation is discussed. Hopefully, these indicators will help you to take your swing trading journey to the next level.
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