There are a number of technical indicators. Each trader have their own unique understanding and combination of various such indicators. A combination of these indicators and when and how to use it makes it a strategy.
After numerous attempts, mistakes and successes, a trader arrives at a strategy that works well by his standards. So it is important to remember that there is no “best strategy”. What works well for you may not work at all for another trader.
I will try and give you an easy to use Swing Trade strategy. You can use this strategy and try paper trading or mock trading. See if this works out for yourself.
The combination of indicators to be used are as follows :
- Support & Resistance Zones
A Support is a price level which is formed when a stock has come to that level multiple times but has not gone below or breached that level. Every other time the stock comes to that level, it bounces back.
A trader can enter a buy position when there is a bounce-back of the prices from the support level.
A Resistance on the other hand is a price level from which the stock falls back to a downward movement. It is formed on the upper end of a trend where the stock is unable to breach the zone to go further up multiple times.
A trader can exit a buy position or enter a short position from the resistance level.
Below is the daily chart of Reliance Industries Ltd that showing such level :
2. Moving Average
If you use a charting software or website like tradingview.com or Investing.com – Stock Market Quotes & Financial News you can select an indicator known as SMA or Simple Moving Average.
A simple strategy would be to use SMA 10 and SMA 20, these are the 10 and 20 days moving averages of the price of the stock..
When the SMA 10 crosses SMA 20 from below there is a bullish crossover and when the SMA 10 crosses SMA 20 from above there is bearish crossover.
So based on this when there is a bullish crossover, an investor can look at a potential entry or long position in the stock.
On the other hand when there is a bearish crossover, the investor can exit from an existing position or look to create a potential short position.
3. MACD Indicator
The MACD indicator is a useful tool to assess the direction of a trend. So it is a trend indicator. MACD consists of two moving averages that are the MACD line and signal line.
When the MACD crosses over the signal line, it is supposed to indicate a bullish move. On the other hand when it crosses below the signal line it is a bearish signal which indicates that it may be time to sell.
Example of MACD bullish and bearish crossovers:
4. Bollinger Bands
A very popular indicator amongst traders nowadays is the Bollinger Band indicator.
A Bollinger Band is essentially made of 3 lines. An upper line, middle line and lower line. This tool is helpful to know the range of the price movements. Every time the price goes below the lower line or above the upper line, a change in the price can be expected to come back within the range of the bands.
One should not use a Bollinger Band alone to take trade calls, it should be coupled with other indicators for a confirmation.
Example below should give you an idea of Bollinger Bands.
So these 4 technical indicators when used together, can be a good way to take your trade calls. But remember to test this strategy before straight away getting into using this method to trade.
Put a strict stop loss and trade within the target range. Do not let greed and fear take over you.