Technical Indicators for Swing Trading


Swing Trading is another word for short term trading. It generally involves holding positions from hours to about one week. Its popularity has grown over the years because of the availability of on-line trading platforms in addition to advanced charting techniques involving predictability of patterns and formations on charts. These patterns often lead to outcomes similar to those of the past. These chart formations are often referred to as technical indicators.

Moving Averages

Moving averages are very important for the knowledgeable investor. It often signifies change of direction either upwards or down wards. When moving average lines cross one another on a chart, it often means either a short term or long term change in direction of the stock price. For those investors interested in swing trading, it could be a very important signal to watch. When moving averages cross paths on a chart, it often signals a trend change. Moving Averages can be calculated from the daily stock trading activity shown on stock charts. Swing traders can use a 10 day moving average (SMA) to enter or exit their positions, some traders also use the 30-day moving average (EMA) to confirm a trend change when it crosses over the 10 day-moving average line.

Stochastic Oscillator

Stochastic is another tool used by many swing traders. It generally signifies a buy entry or a sell exit point. It is calculated mathematically from two lines, the %K line also referred to as the slow line while the %D line denotes the slow line. Stochastic indicators often alert trades when the markets are either overbought or oversold. Overbought conditions enable traders to short the stock in question while oversold conditions signal a buy entry. It is a very important signal for swing trading. Sometimes there are false crossover signals generated through Stochastic Oscillator, so many swing traders generally wait for a confirmation signal to repeat itself, after which they may buy or sell their positions.

Support Lines

When viewed through stock charts, trading reveals trends over time. This could mean minutes, hours, days, weeks, months or years. Swing traders tend to focus on short term trading opportunities, and they could see such activities in stock charts. Support lines illustrates a range on the chart where a stock price fail to penetrate each time the price trades near that range, swing traders may buy into the market when the stock price enters that zone. Generally, a reversal occurs at that point, and the stock starts advancing. In some cases if the volume is heavy, the stock may break that resistance level, and when it happens swing traders often put in place stop loss orders that will kick in when the set price is breached.

Resistance Lines

Resistance lines are the opposite of Support lines. They denote trading level where an advancing stock fails to penetrate each time it trades in that zone. Swing traders will sell that stock short when the chart confirms that a resistance point is reached. During the day’s trading activity, a stock with high volatility may have many resistance levels, in some case five or more times. Such conditions means five trading opportunities for swing traders and an opportunity to make money on each occasion.

Double Bottom or Triple Bottom Formations

Stock charts also show swing traders a pattern referred to as double or triple bottom formations. The way these signals are illustrated is very easy to observe. Let's assume that a stock is declining in value, the first bottom has been established at this point. Suddenly the price reverses direction and starts going back up, only to reverse direction again and start declining once more. When that stock nears the previous bottom, it may reverse direction again, moving up. Short-term swing traders see this as a double bottom formation and may buy into that stock at that point. Sometimes the stock may turn downwards again and may put in place a triple bottom formation. Swing traders usually perceive triple bottom as a more powerful signal.

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