2 Best Indicators For Swing Trading Options

With hundreds of available technical indicators available to retail traders, it can be overwhelming in deciding which ones will work best in identifying the best trades over time. There will always be traders on both the buy and sell side of every market. That is what makes a market.

What is most important is finding which indicators work best for your style of trading and staying disciplined to that approach. Too many traders look for every available indicator to be in alignment before taking a trade.

With all the noise in today’s market, you will want to keep your charts as clean as possible with just a few indicators to help you identify, take, and manage your trades.

I am going to focus on my 2 favorite technical indicators that I like to use on my options swing trading charts. As I will outline below, I use these indicators both to help identify my trades and manage them from start to finish as well. 

5 Period Exponential Moving Average 

The 5 period exponential moving average is an indicator that shows short term price trends by putting more weight on the more recent data points.

We prefer it to a simple moving average as it is faster to react to changing market conditions. Since more weight is placed on the most recent price action, the EMA will track current price action closer and as a result provide us a better read on what markets are doing in real time.

We use this indicator on both the 130 minute and 60 minute charts to help with our swing trading. When using both charts, we like to load up 180 days of data.

The 5 EMA can be a powerful tool in identifying when new moves higher or lower are developing. It can also be a great in identifying key support and resistance levels.

If looking for a long trade, we like to see price break from below the 5 EMA to close above it. Once this happens, it’s very common to see energy released into a new uptrend. 

If looking for a short trade, we like to see price break from above the 5 EMA to below. This will typically lead to a nice trending move on the downside.

We prefer to use it in combination with the 21 EMA, volume, and another momentum indicator as it can lead to a powerful approach that can produce really nice returns in both bullish and bearish markets. 

This indicator can also be a great help with trade management. If you are trading a market that is in a strong trend, the 5 EMA can help you remain in the trade as long as price does not break through the indicator. As soon as that level is broken, there is a good chance that move is running out of steam in the near term. You can use this approach as a signal to lock in profit on a winning trade. 

21 Period Exponential Moving Average 

Much like the 5 EMA, the 21 EMA can be used multiple different ways. We love to use it as a way of identifying key support and resistance levels that can either help manage our open positions or look for trades in the other direction should price break through the indicator. 

We prefer it to a simple moving average as it is faster to react to changing market conditions. Since more weight is placed on the most recent price action, the EMA will track current price action closer and as a result provide us a better read on what markets are doing in real time.

We like to use the 21 EMA on both the 130 minute chart as well as on the 60 minute chart to help with our swing trading. When using both charts, we like to load up 180 days of data. 

When looking for new trades, we like to see prices accelerate above the indicator for a long trade or below the indicator for a short trade. 

It is ideal to see the 5 EMA cross the 21 EMA to confirm price is breaking out. On its own, the EMA cross is not enough to jump into a trade. We like to see confirmation from volume and from another momentum indicator to confirm the energy is there for follow through. 

Once in a trade, we can also use the 21 EMA to help manage the positions. It’s very common for traders to tuck their stop orders right around this level. Once price breaks through the EMA, there is a good chance that directional move is nearing an end.

Summary

Don’t overcomplicate your trading. Putting more indicators on your charts doesn’t always lead to a better result long term. We find that having a simple rule set that you can stay disciplined to over time will outperform the more complex approach in many cases. 

Using 1 or 2 indicators combined with using the right options strategy can lead to powerful returns. Using the 5 EMA and 21 EMA will give you a great starting point.