Swing trading is a strategy that takes advantage of short-term price fluctuations to profit, requiring traders to have quick analysis, decision-making and risk management capabilities. This article explains various indicators in detail, including RSI, moving averages, Bollinger Bands, MACD, volume, stochastics, Fibonacci retracements and ATR. These indicators provide market information from different perspectives to help traders grasp market trends and determine entry and exit points. The article emphasizes that using these indicators effectively requires in-depth market understanding, continuous learning and strict risk management.
In the cryptocurrency market, which operates 24/7, high volatility provides traders with more trading opportunities. Compared with trending markets, traders try to profit from short-term price fluctuations rather than holding assets for the long term. As one of the most common trading strategies, swing trading requires traders to have the ability to quickly analyze the market, make decisive decisions, and strictly manage risks.
As novice traders, while we know how to use volatility to participate in the market, the best practice is to combine multiple indicators and combine technical analysis with fundamental analysis, conduct sufficient learning and trial and error trading to improve the accuracy of trading decisions. This article will introduce volatility trading strategies and 8 best trading indicators for users' reference.
What is swing trading?
Swing trading refers to traders buying and selling operations when market prices fluctuate significantly, with the goal of making profits by capturing short-term price fluctuations. The faster the price changes, the greater the volatility. Conversely, the slower the price changes, the lower the volatility.
Swing traders typically do not hold assets for long periods of time, but instead move in and out of the market frequently. Swing traders buy assets at a swing low and sell them at the next swing high to take advantage of price fluctuations up and down. Swing trading can be done intraday or as part of swing trading or other short-term strategies.
Characteristics of swing trading
1) Compared with trend trading, swing trading has a higher operation frequency
Traders may make multiple trades in a short period of time, which could be days, hours, or even minutes. Especially in the highly volatile cryptocurrency industry, where altcoins fluctuate wildly, traders hold positions for short periods of time and quickly.
2) Technical analysis orientation
Swing trading often relies on technical analysis indicators such as the Relative Strength Index (RSI), moving averages, Bollinger Bands, etc. to help traders better identify short-term opportunities in the market.
3) Risk management is crucial
Due to the volatile market prices, the potential returns and risks are high. Swing traders need to implement strict risk management strategies, including setting stop-profit and stop-loss levels.
Based on the above characteristics, volatility traders can quickly make profits in a short period of time, and there are opportunities to make profits regardless of whether the market is in a bull market, a bear market, or a sideways market. However, volatility trading is also accompanied by extremely high risks and psychological pressure. It usually requires traders to constantly pay attention to market changes and make quick decisions based on market trends. Once the market fluctuates more than expected, failure to stop loss or take profit in time may cause profits to evaporate quickly, or even lead to losses. Especially in crypto trading, trading platforms provide leverage and contract trading services, which amplify the benefits while also amplifying the risks.
Therefore, traders need to choose a volatility trading strategy that suits them based on their own risk tolerance and trading style, and combine multiple effective volatility trading indicators and risk management measures to improve their success rate.
8 Best Swing Trading Indicators
By being familiar with multiple swing trading indicators, traders can better grasp market trends and make quick decisions in a rapidly changing market.
These indicators provide market information from different angles, including trends, trading volume, momentum, etc. They can more intuitively and comprehensively deduce short-term price changes, help traders determine entry and exit points, and also help identify market sentiment and potential turning points, and control risks by setting take-profit and stop-loss points.
Swing trading indicators can generally be divided into the following categories:
Trend indicators
Trend indicators are used to identify the main trend direction of the market and help traders determine the upward or downward trend of prices. Common indicators include: moving average (MA), MACD.
Momentum Indicator
Momentum indicators are used to measure the speed and strength of price changes, helping traders determine the overbought or oversold state of the market, as well as potential reversal points. Common indicators include: Relative Strength Index (RSI), Williams %R (WR) and Stochastic Oscillator.
Volume Indicators
Volume indicators are used to analyze changes in market volume and help confirm the strength of a trend or the possibility of a reversal. Traders can determine the effectiveness of price fluctuations. Common indicators include: Volume and On Balance Volume (OBV).
Volatility Indicators
Volatility indicators are used to measure the volatility of market prices, helping traders identify whether the market is calm or active. Common indicators include: Bollinger Bands, Average True Range (ATR).
Mixed indicators
Hybrid indicators combine multiple types of analysis methods to provide multi-dimensional market analysis. For example, the Parabolic SAR (SAR) combines trend tracking and momentum analysis to provide market reversal signals.
Here are the 8 best swing trading indicators.
1. Relative Strength Index (RSI)
RSI is often used to measure whether an asset is overbought or oversold, and it ranges between 0 and 100.
RSI > 70 is often considered overbought and could signal an impending pullback.
RSI < 30 is often considered an oversold condition and could signal an impending rebound.
It should be noted that RSI is not an absolute indicator. Under a strong trend, RSI may remain high or low for a long time.
(Source: Gate.io)
As shown in the above figure, in the BTC daily chart, BTC started a strong upward trend from the end of January to mid-March this year. Although the BTC daily RSI once reached 80, there were few retracements during the rise, and the upward momentum was strong. Until mid-March, the daily RSI finally reversed the trend and fluctuated downward after maintaining a high level close to 90.
2. Moving Average (MA)
MA smoothes price data by calculating the average price over a certain period of time, helping traders identify and confirm market trends. The main types are:
Simple Moving Average (SMA): A simple arithmetic average of all prices over a specified period.
Exponential Moving Average (EMA): Gives more weight to recent prices and reacts faster to market changes.
Weighted Moving Average (WMA): Calculates the average based on a custom weight.
When the price is above the MA, it is usually considered an uptrend.
When the price is below the MA, it is usually considered a downtrend.
When multiple MA lines converge, it may indicate that a large move is imminent.
MAs are often viewed as dynamic support or resistance levels. When a crossover signal occurs, such as a short-term MA crossing a long-term MA, it may indicate a trend change.
As shown in the figure below, after the 9-day EMA on the BTC 4-hour chart crossed the 26-day EMA from below, BTC entered an uptrend in the short term. This intersection is called a "golden cross" and is usually considered a buy signal. Conversely, a crossover is called a "death cross" and is usually considered a sell signal.
(Source: Gate.io)
However, it should be noted that MA works better in trending markets, but in volatile markets, MA may generate a large number of false signals. Therefore, traders should not rely solely on MA, but should combine it with other technical indicators such as trading volume for comprehensive analysis.
3. Bollinger Bands
Bollinger Bands were created by John Bollinger in the 1980s to measure market volatility and possible price ranges.
The composition of Bollinger Bands:
Middle line: Usually a 20-period simple moving average (SMA).
Upper track: middle track plus two standard deviations.
Lower track: Middle track minus two standard deviations.
Bollinger Bands are a volatility indicator. A wider band indicates increased volatility, while a narrower band indicates decreased volatility. When the Bollinger Bands are extremely narrow, it usually indicates that a large volatility is about to occur.
In a volatile market, Bollinger Bands can be viewed as an “oversold or oversold” signal:
Prices approaching or breaking the upper band may indicate overbought conditions.
Prices approaching or breaking the lower band may indicate oversold.
It is important to note that the Bollinger Bands behave differently in trending markets and volatile markets. In a trending market, asset prices may remain above or below the Bollinger Bands for a long time, so it should not be simply regarded as a "sell or buy" signal at this time.
As shown in the figure below, BTC 4-hour chart, its price trend has been fluctuating between the lower track and the upper track.
(Source: Gate.io)
4. Moving Average Convergence Divergence (MACD)
MACD consists of two lines: the MACD line (fast line) and the signal line (slow line), whose crossovers and relationship to the zero line can provide trading signals.
MACD line crosses above the signal line: possible buy signal
MACD line crosses below the signal line: possible sell signal
MACD histogram turns from negative to positive: it may indicate that the upward momentum is increasing
Divergence between MACD and price may signal a trend reversal
For example, as shown in the red box in the figure below, the MACD line on the BTC daily chart crosses the signal line, and the MACD histogram turns positive. At this time, the upward momentum of BTC increases and continues to rise.
(Source: Gate.io)
5. Volume
Although trading volume is not a complex technical indicator, it is extremely important and can verify the strength of price trends.
Rising prices accompanied by increasing volume: usually seen as a strong uptrend
Falling prices accompanied by increasing volume: may indicate strong selling pressure
Price movement with low volume: may indicate a lack of trend sustainability
Sudden surge in trading volume: Could signal important market turning point
Looking at the BTC daily chart, several subsequent BTC moves with significant increases in trading volume have seen wild swings.
(Source: Gate.io)
6. Stochastic Oscillator
The Stochastic indicator is a momentum indicator that includes the %K line and the %D line, which is used to determine the price position over a certain period of time. It works similarly to the RSI indicator, but the calculation method is different.
%K line crosses above %D line: possible buy signal
%K line crosses below %D line: possible sell signal
Indicator value over 80: Possibly overbought
Indicator value below 20: Possibly oversold
(Source: Gate.io)
As shown in the figure above, in the BTC daily chart, when the stochastic indicator is below 20 for many times, BTC is also at a stage bottom, indicating that the market is oversold and there is a need for a rebound. However, it should be noted that although the stochastic indicator is a useful tool, it is not omnipotent. Traders should use it in combination with other technical analysis indicators and fundamentals to improve the accuracy of judgment.
7. Fibonacci Retracement
Fibonacci retracements are based on the Fibonacci sequence and are used to identify potential support and resistance levels. Commonly used retracement levels include 23.6%, 38.2%, 50%, and 61.8%.
In an uptrend, these levels could act as supports on pullbacks.
In a downtrend, these levels might act as resistance for a rebound.
For example, in BTC’s most recent plunge, the price fell from $70,018 to $49,116. According to the commonly used Fibonacci level, when BTC rebounded later, it received support at the 38.2% position many times, and the 61.8% position became a rebound resistance level.
(Source: Tradingview)
8. Average True Range (ATR)
ATR is a volatility indicator developed by J. Welles Wilder Jr. It measures the average price fluctuation of an asset over a specific time period, regardless of price direction, and can help traders set stop-loss levels and price targets.
High ATR values: Indicate high volatility and may indicate important market turning points or breakouts
Low ATR values: Indicate low volatility and may indicate consolidation or the end of a trend
Used to set stop loss: For example, you can set the stop loss at 2 times ATR outside the entry price
(Source: Gate.io)
For example, the current price of BTC is $58,500, and the daily ATR is 2470, which means that the average daily price fluctuation of BTC is about $2470. At this time, the stop loss point can be set at the entry price minus 2 times the ATR, which is about $53560 (58500-2470*2).
Conclusion
In general, swing trading indicators provide a strong technical analysis foundation for swing trading, but their effective use requires in-depth market understanding, continuous learning, and strict risk management. As a trader, it is best to use multiple indicators in combination, verify signals with each other, set personalized parameters according to your own trading risks, and continuously optimize your trading strategy. At the same time, traders should also combine fundamental analysis, market dynamics, etc. to flexibly adjust their trading logic. #比特币突破10万？
