Best Swing Trading Indicators?


One question I get asked a lot is "What indicators do you use?" or "What are the best indicators for Swing Trading?".

My answer to the person asking is always the same.

"Well it really depends on the beliefs you have about the market and the system you have designed to trade those beliefs" is my response.

I usually get a confused look followed by a slight moment of silence.

I then go on to say that the best indicators for ME might not be the best for THEM.

This gives me a great opportunity to teach people who are interested in Swing Trading about some of the core principals needed to become successful.

But rather than making this article about "Trading your beliefs" I will stick to the topic however… instead of answering "what are the BEST swing trading indicators?", I will tell you about some of the most popular indicators used in swing trading.

That way you can determine which swing trading indicators are the best for you (and your belief system!).

I would say that for identifying trending stocks or ETF's that the most popular indicators would be moving averages, the ADX, the MACD, and trend lines.

If you are trying to measure volatility then I would say that Bollinger Bands and the ATR or True Range indicators are at the top of the list.

For overbought/oversold indicators RSI, ROC and stochastics seems to be the most popular.

Remember that indicators and oscillators can be used to generate trading signals (entries and/or exits) or simply as a filter for identifying potential trade set ups.

For example we like to look at stocks or ETF's trading above their 50 period moving average for LONG swing trading set ups.

We use the 50 period SMA as a FILTER and then drill down a little more to see if the trade makes sense to us.

This is based on our belief that stocks trading above their 50 period moving average are showing overall relative strength and that there is a good amount of institutional buying interest in these stocks or ETF's.

Another important thing to always consider is the context of the market.

You can be using an indicator that is aligned perfectly with your belief system but if the market, sector or individual stock or ETF is in a different context than your indicator you will have problems.

What I mean by this is, for example, using a trend following indicator in a sideways, consolidating market.

Or using a overbought/oversold oscillator in a breakout stock that begins to trend.

In these two examples you can quickly see how even the best swing trading indicator can lead to poor results if used at inopportune moments.

All in all the best swing trading indicators are the ones that make sense to you in the context of the current market environment and allow to trade your beliefs in a profitable manner.