Best technical indicators for swing trading pdf

3 Most Useful Day Trading Indicators.

Day trading indicators are often touted as the holy grail of trading but that is simply not true.

They are a useful trading tool that should be used in conjunction with a well rounded trading plan but are not the plan itself.

In this article I will cover:

Keeping Trading Simple.

Whether you swing trade, day trade, or even position trade, too many trading indicators equals complexity which usually equals lack of consistency with trading decisions.

Information overload is often the result of traders finding a mix of day trading indicators potentially useful but in fact don’t really help in the trader making a profitable decision.

I have used trading tools in different combinations over the years and there are three that I found to initially be the most useful day trading indicators for how I like to trade.

As time went on, simple became my mantra and as a result, my trading decisions were clearer and were made with much less confusion and stress.

Day Trading Indicators Give Information About Price and Volume.

Almost every charting platform comes with a host of indicators that those who engage in technical trading may find useful. You simply apply any of them to your chart and a mathematical calculation takes place taking into past price, current price and depending on the market, volume.

Different types of technical indicators do different things:

Trend direction Momentum or the lack of momentum in the market Volatility for profit potential Volume measures to see how popular the market is.

The issue now becomes using the same types of indicators on the chart which basically gives you the same information. While this may be explained as looking for “trade confirmation“, what it really does is give you conflicting information as well as more information to process.

A simple example is having several trend indicators that show you the short term, medium term, and longer term trend. From a multiple time frame perspective, this may appear logical.

Many traders though can attest to seeing a perfectly valid setup negated because of a trend conflict and then watching the trade play itself out to profit.

Too much information can cause analysis paralysis which can keep you.

from making trading choices that are actually profitable ones.

Looking at just the trading range portion and price relation to the moving average, we have:

Price below longer term average means short Price above medium term means long Price above short term means long.

Not seen on this chart but the pivot black candle below #2 is actually a retrace into an area where a long trade was the call yet all trading indicators called to short at that time.

That is the main drawback with most trading indicators and that is since they are derived from price, they lag price.

A trend indicator can be a useful addition to your day trading but be extremely careful of confusing a relatively simple trend concept.

Day Trading Question: Day trading involves quick decisions.

Would your trading be better served by simple or complex information gathering?

Useful Trading Indicator Selection.

Useful is subjective but there are general guidelines you can use when seeking out useful indicators for your day trading.

One simple guideline is to choose one trend indicator such as a moving average and one momentum trading indicator such as the stochastic oscillator.

In order to explain how these can be useful as day trading indicators, take a look at this chart:

In brief, this is a pivot area where price broke through and rallied hard away from the moving average Price starts to trade above moving average as well as slope of indicator is up and our plan says trend is up Price returns to the area marked #1 (also a complex ab=cd retrace) Momentum indicator crosses and turns up and we buy stop the high of the candle that turned it.

Simple selection of trading indicators mixed with chart technicals can be the basis for your trading system.

Do Trading Indicators Work?

It all depends on how they are put together in the context of a trading plan. Some of the most used technical indicators such as moving averages, MACD, and CCI work in the sense that they do their job in calculating information.

The power of the indicator lies in how you interpret the information as part of an overall trade plan.

Don’t be sold on the “holy grail” indicator that marketers flood your inbox with. Proper usage of basic indicators against a well tested trade plan through back testing , forward testing, and through demo trading is a solid route to take.

All of the systems that are offered by Netpicks not only come with tested trade plans but also hammer home that you must prove any trading system or trading indicator to yourself.

Threat Of Over-Optimization.

There is a downside when searching for day trading indicators that work for your style of trading and your plan.

Many systems that are sold use standard indicators that have been fine tuned to give the best results on past data. They package it up and then sell it without taking into account changes in market behavior.

The backbone of many trading systems are very mechanical in the sense that “if A happens, do B”.

There is nothing wrong with optimizing to take into account current market realities but your approach and mindset in doing so can either have you being realistic or over-optimizing out of the realm of reality.

One way you may choose to not fall into the over-optimizing trap is to simply use the standard settings for all trading indicators. This ensures you are not zeroing in on the most effective setting for the market of today without regard for tomorrow.

Small List of Useful Day Trading Indicators.

As I mentioned at the start of this article, there are three indicators which I personally have had great success with over the years and is how I started.

My trading as evolved as I began to understand other aspects of the trading but these are where I started:

For the sake of consistency, I am going to use the same chart as I previously did. This is a day trading/swing trading chart of 1 hour on a Forex pair.

This zone was determined once the swing high was in place. It is a combination of the Fibonacci retracement and Fibonacci expansion (used for symmetry) This is the moving average used for objective trend determination. A short term setting will give you faster trend changes with more whipsaw. A longer term setting can have you miss a large portion of the current move Once the CCI comes close to or crosses the 0 level, a buy stop is place above the high.

You can see the trend is up and price has retraced into an area that I would be interested in taking a trade. Once price hits the area, there is a potential setup but a trade trigger is needed to get into the trade.

The commodity channel index plus price moving in the trade direction is the needed trigger.

I purposely left out exact rules and settings (hint – settings are standard) so you can design your own strategy using your current trading knowledge.

This exact setup is applicable to day trading, swing trading, and even position trading.

Moving average – Determine trend and can be part of the process in triggering in a trade and momentum plays. (both not described in this trading article) Fibonacci – Determine, in advance of price, zones I may be interested in for a setup and possible trigger. Can also be used for profit targets. CCI – Used for trade triggers but does have many uses including trend determination.

Does The Choice Of Trading Indicators Change?

As you can see, this list gives the 3 most useful trading indicators for me at a certain point in my trading.

Times change and what was useful then may not be useful for me today.

Every trader will find something that speaks to them which will allow them to find a particular technical trading indicator useful. Whatever you find, the keys is to be consistent with it and try not to overload your charts and yourself with information.

Simple is usually best:

Determine trend – Determine setup – Determine trigger - Manage risk.

CoachShane.

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4 Responses to “3 Most Useful Day Trading Indicators”

Al Lees July 23, 2014.

I do not trade futures. I am a swing trader in stocks and ETF’s. I am currently using MA, R, Stoch. and DMI. Sounds to me that I would benefit from use of your system.

Hi Al. Glad you enjoyed the read. As long as you are on the list for Netpicks, if I ever do a course on this topic you would be informed. Thanks for the interest!

Are these indicators recommended for YM and CL? thanks.

Sorry….I just saw your question. Indicators are just a tool and the ones presented in this trading article, have universal appeal. Try them out.

Top Technical Indicators For Rookie Traders (USO, SPY)

Starting out in the trading game? Looking for the best technical indicators to follow the action is important. It affects how you’ll interpret trends - both on positions and in the broad averages - as well as the type of opportunities that pop up in your nightly research. Choose wisely and you’ve built a solid foundation for success in speculation. Choose poorly and predators will be lining up, ready to pick your pocket at every turn.

Most novices follow the herd when building their first trading screens, grabbing a stack of canned indicators and stuffing as many as possible under the price bars of their favorite securities. This "more is better" approach short circuits signal production because it looks at the market from too many angles at once. It’s ironic because indicators work best when they simplify analysis, cutting through the noise and providing usable output on trend, momentum and timing.

Instead, take a different approach and break down the types of information you want to follow during the market day, week or month. In truth, nearly all technical indicators fit into five categories of research. Each category can be further sub divided into leading or lagging. Leading indicators predict where price is headed while lagging indicators report background conditions when price is already in motion:

Trend indicators (lagging) analyze whether a market is moving up, down or sideways over time. Mean reversion indicators (lagging) measure how far a price swing will stretch before a counter impulse triggers a retracement. Relative strength indicators (leading) measure oscillations in buying and selling pressure. Momentum indicators (leading) evaluate the speed of price change over time. Volume indicators (leading or lagging) tally up trades and quantify whether bulls or bear are in control.

Setting technical indicators to the most applicable numerical inputs for a specific trading style takes skill and experience, so how can a beginner choose the right setting at the start and avoid months of ineffective signal production? The best approach in most cases is to begin with the most popular numbers, while adjusting one indicator at a time and seeing if the output helps or hurts your performance. Using this method, you’ll quickly grasp the specific needs of your level.

Now that you understand the five ways that indicators dissect market action, let’s identify the best ones in each category for novice traders.

We’ll start with two indicators that are embedded within the same panel as the daily, weekly or intraday price bars. Moving averages look back at price action over specific time periods, sub diving the total to create a running average that’s updated with each new bar. (For related reading, see: How To Use A Moving Average To Buy Stocks ). The 50 and 200-day Exponential Moving Averages (EMAs) are more responsive versions of their better-known cousins, Simple Moving Averages (SMAs). In a nutshell, the 50-day EMA measures the average intermediate price of a security while the 200-day EMA measures the average long term price. (For related reading, see: Strategies & Applications Behind The 50-Day EMA ).

US Oil Fund (USO)’s 50 and 200-day EMAs rose steadily into the summer of 2014, while the instrument pushed up to a 9-month high. The 50-day EMA turned lower in August, with the 200-day EMA following suit one month later. The shorter-term average then crossed over the longer term average (indicated by the red circle), signifying a bearish change in trend that preceded an historic breakdown.

USO buying and selling impulses stretch into seemingly hidden levels that force counter waves or retracements to set into motion. Bollinger bands (20,2) try to identify these turning points by measuring how far price can travel from a central tendency pivot, the 20-day SMA in this case, before triggering a reversionary impulse. The bands also contract and expand in reaction to volatility fluctuations, showing observant traders when this hidden force is no longer an obstacle to rapid price movement. (For more, read: Using Bollinger Band "Bands" To Gauge Trends ).

Relative Strength: Stochastics (14,7,3)

Market movement evolves through buy-and-sell cycles that can be identified through Stochastics (14,7,3) and other relative strength indicators. These cycles often reach a peak at overbought or oversold levels and then shift in the opposite direction, with the two indicator lines crossing over. Cycle alternations don’t automatically translate into higher or lower security prices as you might expect. Rather, bullish or bearish turns signify periods in which buyers or sellers are in control of the ticker tape. It still takes volume, momentum and other market forces to generate price change.

SPDR S&P Trust (SPY) oscillates through a series of buy-and-sell cycles over a 5-month period. Look for signals where a) a crossover has occurred at or near an overbought or oversold level and b) indicator lines then thrusts toward the center of the panel. This two-tiered confirmation is necessary because Stochastics can oscillate near extreme levels for long periods in strongly trending markets. And, while 14,7,3 is a perfect setting for novice traders, consider switching to faster 5,3,3 inputs once you gain market experience.

Moving Average Convergence-Divergence (MACD) indicator, set at 12,26,9 gives novice traders a powerful tool to examine rapid price change. (For related reading, see: Read Market Trends With Convergence-Divergence Analysis ).This classic momentum tool measures how fast a particular market is moving, while it attempts to pinpoint natural turning points. Buy or sell signals go off when the histogram reaches a peak and thrusts in the opposite direction through the zero line. The height or depth of the histogram, as well as the speed of change all interact to generate a variety of useful market data. (For more, see: MACD And Stochastic: A Double-Cross Strategy ).

SPY shows four notable MACD signals over a 5-month period. The first signal flags waning momentum while the second captures a directional thrust that unfolds right after the signal goes off. The third signal looks like a false reading but accurately predicts the end of the February-March buying impulse. The fourth triggers a whipsaw that’s evident when the histogram fails to penetrate the zero line.

Keep volume histograms under your price bars to examine current levels of interest in a particular security or market. The slope of participation over time reveals new trends, often before price patterns complete breakouts or breakdowns. (For related reading, see: The Anatomy Of Trading Breakouts ). You can also place a 50-day average of volume across the indicator to see how the current session compares with historic activity.

Now add On Balance Volume (OBV), an accumulation-distribution indicator, to complete your snapshot of transaction flow. (For more, read: On-Balance Volume: The Way To Smart Money ). The indicator adds up buying and selling activity, establishing whether bulls or bears are winning the battle for higher or lower prices. You can draw trendlines on OBV, as well as track the sequence of highs and lows. It works extremely well as a convergence-divergence tool, as Bank of America (BAC) proves between January and April when prices hit a higher high while OBV hit a lower high, signaling a bearish divergence preceding a steep decline.

Choosing the right technical indicators is daunting but can be managed if novice traders focus the effects into five categories of market research: trend, mean reversion, relative strength, momentum and volume. Once they’ve added effective indicators for each category, they can begin the long but satisfying process of tweaking inputs to match their trading styles and risk tolerance.

Best Technical Indicators – Learn The Stair Step Method.

ETF Strategy Generated Over 1087%

In Just 6 Years.

Learn How To Use Some Of The Best Technical Indicators To Swing Trade Stocks.

Recently, I demonstrated how to take a simple stochastic indicator and create one of the best technical indicators for short term trading.

Today I'm going to expand and show you another entry method using the same indicator and the same settings. If you have not read yesterday's article or have not seen the video, there's a link to both at the bottom of this page for you to review.

Solid Technical Analysis Indicators Do Not Have To Be Complex.

This entry strategy is called the stair step method and uses the modified stochastic indicator to measure retracements away from the trend.

To review, you must change the settings on the Stochastic Indicator from 14 bars to 5 bars for the slow line and leave the fast line at 3 as is.

This slight modification is necessary to turbo charger the Stochastic for short term trading and creates one of the best technical indicators for short term market swings.

Pick Stocks Or Other Markets That Are Technically Trending Strongly.

The first thing you need to do is make sure that you select stocks or any other market that's trending strongly. If you need some basic tips on finding trending markets or what qualifies as a trending market, you can review several videos that I previously created that demonstrate this step.

The Stochastic Indicator works much better for retracements than for picking tops and bottoms. Therefore you want to find a stock or any other market that's trending strongly either up or down.

What we want to see is the Stochastic Indicator creating a double bottom pattern. The only caveat is the second bottom has to be higher than the first bottom.

Both have to be below 20 but the second one has to be higher than the first one. There should also be divergence between the second bottom and the market you are trading, in plain English this means the stock or other market you are trading must not drop very much compared to the indicator.

Here's an example so you can see what I mean.

The modified Stochastic Indicator makes a second bottom but it's not as low as the first one.

Notice the strong divergence between stock's price and the indicator; this is the type of divergence you want to see.

Another great example of the Stair Step method in action.

The Stochastic drops to below 20 but the stock barely lost 2 points, this is good divergence between the indicator and the stock. The second low is higher as well.

The second top is above 80 but still lower than the first one.

In the example below you can see how the Stair Step Strategy works with stocks trending down. You can tell by looking at Big Blue that the second high is lower but still manages to go above 80.

Also notice how IBM barely rises while the indicator hits bought level, this is the divergence I'm talking about. I hope you can see why the Stochastic Indicator has been around for over 50 years but remains one of the best technical indicators that are publicly available.

I typically avoid stocks under $20 dollars when I go long. This rule doesn't apply when you shorting stocks.

Another great example of the Stair Step Method in action; Micron stock has been one of the most popular Short Term Trading Stocks around for over 15 years.

Remember, the best technical indicators don't have to be complicated or difficult to use. I've seen methods that don't work half as well as this one sell for $3999.00.

This is the second entry method that I'm demonstrating using the Modified Stochastic Indicator. Next week I will show you the risk method and the profit target method that I use to trade both methods.

ETF Strategy Generated Over 1087%

In Just 6 Years.

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Should You Use Technical Indicators?

Are technical indicators worth using?

Which ones should I use?

Is there one indicator that is better than another?

MACD? Stochastics? RSI?

Stop the madness!

The only thing you need is an understanding of price action .

If you are new to trading stocks you will do yourself a great disservice by trying to use technical indicators to trade stocks. You are far better off by first learning to trade stocks based on price action alone. So put away your OBV, CCI, and PPO for now and just focus on the chart.

Leading And lagging indicators.

Technical indicators are generally classified into two categories: Leading Indicators and Lagging Indicators. Leading indicators like stochastics are supposed to lead the price action. Lagging indicators like moving averages follow price action.

This is what they are supposed to do but in reality all technical indicators are lagging indicators because they cannot draw on a chart until after the price action has already been established.

Remember that all technical indicators are generated by using the high, low, open, close, or volume of a stock. It gets this information from the price action in the stock first, then it shows up on your chart as RSI, MACD, etc. Therefore, these indicators can never tell you anything more than what the chart is already saying!

Using technical indicators is like using binoculars at a rock concert when you are in the front row! Why would you do that? Put the binoculars down and just look at the stage! It is the same thing with charts. Just look at the price action.

Learn how to interpret price first.

Ok, now that you know the truth about technical indicators, you can finally relax. You can stop looking for the perfect indicators to solve all your trading problems. So what should you look for on a chart? Good question! The main thing that you are trying to figure out on a chart is the psychology of other traders.

You are trying to figure out where they are going to buy and where they are going to sell. You are trying to get into their heads! You want to know if they are excited, nervous, scared, or uninterested.

Every stock, in every time frame, alternates between these four emotional extremes. A stock breaks out of a consolidation (excited), momentum slows down (nervous), traders begin to sell (scared), the selling finishes and there is indecision (uninterested). This cycle repeats over and over again.

As a trader you look at price to find the point at which one emotional state is about to evolve into another. Candlestick patterns are useful to determine these turning points. They will give you these signals far in advance of any technical indicator!

Using technical indicators the right way.

You still want to use indicators in your trading? That's fine, just use them the right way - to indicate! If you like using RSI then use it to tell you that a turning point may be coming. Then just forget about it and focus solely on the price action in the stock.

Too often I see traders buying stocks just because an indicator is overbought or oversold. A stock can become overbought or oversold for a very long time. In the meantime you have a position in the stock and you are losing money!

Look for divergences. If there is one thing that technical indicators can be useful for is the ability to identify those times when price is at odds with the indicator. This can signal that a turning point may be coming. As always look at the candles (price) for validation.

Use the right indicator for the job. For analyzing trends using trend following indicators like moving averages. For trading ranges, use oscillators like RSI.

Remember that you do not need any kind of indicator to trade stocks and you certainly should not be using them until you have a full understanding of how to interpret the price action. Even then you may opt to never use them in your trading. I don't use any on my charts.

Practice makes perfect.

Print out 20 charts of random stocks. Do not put one technical indicator on the chart! Don't even put moving averages or volume on it. Now find a quite spot in your favorite chair, fire up a nice premium cigar, and just look at the candles.

Look for support and resistance, trend lines, and emotional extremes. Take a piece of paper and cover up the "hard right edge" and try to get into the heads of these traders. Can you feel what they are feeling? More importantly, can you anticipate what will come next?

It has been said that "technical indicators are for novice traders who do not know how to interpret price".

I would have to agree with that.

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