In swing trading, it is very important for you to use the trending indicators for a trending stock or security and a ranging indictor to a ranging stock or security. Before swing trading a stock or a security, you need to determine whether the stock or the security is trending or ranging. You need to do this right in order to make your swing trading a profitable success.
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As a swing trader, you should only rely on the hourly and daily charts. Anything longer is only appropriate for position traders or buy and hold investors. Now, if you are satisfied with your eyeballing the charts, you can use an indicator that can tell you about the strength of the trend.
The most popular indicator that shows whether the security is trending or ranging is the Average Directional Index (ADX). ADX actually measures the strength of the trend rather than it’s direction. It oscillates between the value of 0 and 100. The standard setting for ADX is 14 days period.
ADX or what you call the Average Directional Index is an oscillator that oscillates between 0 and 100 values. If the ADX reading is above 30, it means that the market is trending rather it is in a strong trend. If the ADX reading is below 20, the market is ranging. FOr ADX readings between 20 and 30, the conclusion is inconclusive. ADX however, does not tell the direction of the trend. You can easily determine the direction of the trend by eyeballing the chart and joining any two points on the chart with a straight line. If the slope is up, it means an uptrend and if the slope is down, it means a downtrend.