There are several different types of indicators ETF traders use to enter and exit positions…
But most of the best ETF swing trading indicators are based on technical analysis and chart patterns.
So in this article, I’ll outline the basic types of ETF indicators that tend to work best…
Before I get into the specifics, you need to understand there are three basic types of indicators I’ll describe how to identify below: conforming trends, overbought and oversold conditions, and chart patterns and trade setups.
The Best ETF Swing Trading Indicators: The 50-Day Moving Average
The best ETF swing trading indicator most people begin experimenting with is the moving average.
It’s an indicator that’s been used by traders for decades to help identify and confirm a trend. There are several different types of moving average indicators, but the most basic kind is the simple moving average…
The simple moving average is calculated by adding the closing prices for a set number of days, and then dividing the total by that same number.
The average is plotted each day to give a running average of the market’s price.
The typical length of a moving average is 20 days for short-term trading, 50 days for intermediate-term trend and 200 days for long-term market analysis.
Many traders use indicators based on the moving average such as Bollinger Bands.
The Best ETF Swing Trading Indicators: The Relative Strength Index Measures Overbought and Oversold Levels
The next best ETF swing trading indicator is all about momentum.
These are leading indicators, which means they anticipate what will happen next…
Unlike the moving average, which is a lagging indicator that reacts to what has already happened in the markets. One of the most popular momentum indicators is the Relative Strength Index.
The RSI is available on every charting program both online and off.
It measures the strengthening and weakening of momentum and is most commonly used to indicate temporary overbought and oversold levels in stocks, futures and commodity markets.
The RSI indicator works well when markets are flat and range-bound, and is only recommended during this type of market condition.
Another popular use of momentum indicators is to determine divergence between the ETF and the indicator.
If the ETF makes a lower low while the indicator makes a higher low, that means the market is overbought and a trend reversal may be near. And if the ETF makes a higher high while the RSI indicator makes a lower high, that means momentum to the upside may be slowing and the market may be overbought.
The Best ETF Swing Trading Indicators: Visual Chart Patterns Make Excellent Analysis Tools
Visual analysis has been around since before the 20th century and used by professional traders around the world for technical analysis.
Technical indicators have become easier to use with time, but they’re based on advanced math and statistical formulas. Visual analysis remains one of the most popular methods to analyze ETFs, stocks, futures, currencies and commodity markets.
Basic patterns such as flags, head and shoulder and other visual patterns based on price remain among the best ETF swing trading and short-term indicators.
Many trading patterns I use for my daily market recap are based on simple visual analysis.
How These Indicators Can Help You
The best way to use technical indicators is to determine the underlying conditions of the ETF you’re trading.
If the ETF is trending strong and using a lagging indicator, such as a moving average, it should produce the best results.
If the ETF is flat and range-bound, an oscillator such as the RSI or Stochastic would work better.
Remember, a simple visual analysis of the slope of the trend line will often provide all of the feedback necessary to determine the most accurate trading conditions for ETFs.
This is just a short introduction into some of the best ETF swing trading indicators.
If you’d like to learn more about ETFs and swing trading, check out these other posts: 4 Swing Trading Tips for Beginners and The Best Short-Term Trading Strategy for Beginners.
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All the best,
Senior Strategist, WealthPress