Best Indicators for Day/Swing Traders and How to Use Them
An Introduction
This is a quick overview of three of the best trading indicators for day and swing traders alike. If you are a new trader then it is very important for you to understand that no indicator or oscillator is going to make you trade profitably immediately, so don’t go on a wild goose chase to find one that will. Learn a select few indicators and the methods and strategies to use them effectively. Master them, and then learn more.
“Your strategy will be more profitable using fewer indicators that you have mastered. Then more indicators that you haven’t.”
Let’s begin.
Comment:
Relative Strength Index (RSI)
The RSI indicator provides a relative evaluation of the strength of a security’s current price, using it’s past performance and volatility. Again, this is another must-have for any type of trader and/or trading style.
The RSI scores a security on a scale of 1-100, you will need to remember this for the tips below.
RSI Can be Used a Number of Ways
1.) Identifying Overbought/Oversold Conditions
Identifying overbought/oversold conditions is useful in finding trend reversals or corrections. When a security is overbought it can signal a bearish trend reversal or a correction, when a security is oversold it can signal a bullish trend reversal or correction.
The textbook numbers for these conditions is 70/30: 70 = overbought/overvalued, 30 oversold/undervalued. Though in an effort to reduce fake outs, some traders (including me) use 80/20 for those conditions.
2.) Identifying Divergences
Traders can also use divergences to identify trend reversals, a divergence is a difference or disagreement (link to Merriam Webster below).
Bullish Divergent Signal
When the price makes a new low but the RSI does not (or equivalent).
Bearish Divergent Signal
When the price makes a new high but the RSI does not (or equivalent)
austindrysdale.com/w...8-06-02-15-22-28.png
Quick large movements will create fake-outs (false signals). So just like any other indicator, always confirm trends with other tools/methods.
The RSI indicator provides a relative evaluation of the strength of a security’s current price, using it’s past performance and volatility. Again, this is another must-have for any type of trader and/or trading style.
The RSI scores a security on a scale of 1-100, you will need to remember this for the tips below.
RSI Can be Used a Number of Ways
1.) Identifying Overbought/Oversold Conditions
Identifying overbought/oversold conditions is useful in finding trend reversals or corrections. When a security is overbought it can signal a bearish trend reversal or a correction, when a security is oversold it can signal a bullish trend reversal or correction.
The textbook numbers for these conditions is 70/30: 70 = overbought/overvalued, 30 oversold/undervalued. Though in an effort to reduce fake outs, some traders (including me) use 80/20 for those conditions.
2.) Identifying Divergences
Traders can also use divergences to identify trend reversals, a divergence is a difference or disagreement (link to Merriam Webster below).
Bullish Divergent Signal
When the price makes a new low but the RSI does not (or equivalent).
Bearish Divergent Signal
When the price makes a new high but the RSI does not (or equivalent)
austindrysdale.com/w...8-06-02-15-22-28.png
Quick large movements will create fake-outs (false signals). So just like any other indicator, always confirm trends with other tools/methods.
Comment:
Volume
Using Volume in trading is really easy to understand, but is usually overlooked by new traders. Obviously, it is important for good liquidity and blah blah blah… but the rule that really changed the way I traded when I was learning was this.
“Trends need to be supported by volume, always ensure heavier volume is taking place in the direction of a trend.”
Learning this improved my game substantially. When an uptrend in price is in play, new money needs to be supporting it, so you need to see rising volume. Vice versa with downtrends. If this is not happening then this is a sign of overvalued or undervalued conditions.
austindrysdale.com/w...8-06-02-15-30-50.png
As seen above, you can spot trend reversals by seeing decreased volume on trend peaks.
Using Volume in trading is really easy to understand, but is usually overlooked by new traders. Obviously, it is important for good liquidity and blah blah blah… but the rule that really changed the way I traded when I was learning was this.
“Trends need to be supported by volume, always ensure heavier volume is taking place in the direction of a trend.”
Learning this improved my game substantially. When an uptrend in price is in play, new money needs to be supporting it, so you need to see rising volume. Vice versa with downtrends. If this is not happening then this is a sign of overvalued or undervalued conditions.
austindrysdale.com/w...8-06-02-15-30-50.png
As seen above, you can spot trend reversals by seeing decreased volume on trend peaks.
Comment:
Notes
If you found this article helpful, then please do leave your support. If you didn’t, I’m not scared of criticism. There are plenty more indicators that are very useful to traders if you would like me to cover more. Let me know!
I use Binance to trade, you can sign up using this link. (www.binance.com/?ref=111660...)
If you found this article helpful, then please do leave your support. If you didn’t, I’m not scared of criticism. There are plenty more indicators that are very useful to traders if you would like me to cover more. Let me know!
I use Binance to trade, you can sign up using this link. (www.binance.com/?ref=111660...)
Moving Averages put simply are just lines that are calculated by past prices. They are easy to understand and are extremely useful with any trading type, whether that is intraday, swing, or even longer trading styles.
You should always have multiple MA lines with differentiating time periods on your chart. I personally use three MAs: 9 day MA, 50 day MA, and a 100 day MA. This gives me a broader viewpoint on the market and helps my identify stronger trends and reversals.
2 Ways to Use Moving Averages
1.) Identifying Trend Strength
Put simply, the farther away the current price and trend are from its relative moving average, the weaker that trend is, helping you the trader, spot potential reversals and finding entries and exits. This method in good practice is used in conjunction with other indicators like volume. (below).
2.) Identifying Trend Reversals with Crossovers
Usually, MA crossovers can be signals for trend reversals, for example, if the nine-day MA crosses below the 50 day MA after an uptrend. Then the bullish trend may be reversing signaling a bearish trend. Be warned though, because there tend to be frequent fake-outs with crossovers that catch new traders off guard, you should always make sure to confirm reversals using other methods and tools.
austindrysdale.com/w...8-06-02-15-13-22.png
Moving Averages are important because they provide traders an understanding of the markets state, never trade blindly.