Swing trading is a trading style that has been made really popular by retail traders during the 2020-2021 market recovery after we had a large pandemic-driven drop. Naturally, swing trading has been around forever, so there is a lot to learn when it comes to the subject.
Throughout this article, we are going to discuss the top 3 indicators a trader can attribute to their swing trading.
- Volume Profile
- Volume
- Market Breadth (Oscillator)
The group of these indicators is fairly simple to understand and we can use them for either long swings or short swings. Now the way that you trade the products can be up to you, I’ve noticed that these work well with options and equities.
1. The Volume Profile
The Volume Profile is a TRADEPRO Academy staple, no matter the asset class or trade, there is nearly 100% probability that the volume profile will be used. We have done countless blogs on the volume profile, along with Youtube videos, so we are going to keep this briefer. (Explanation wise), however using examples, we’re going to break it down to the fullest.
The volume profile displays volume vertically on the screen so you can see how heavy the volume was on each of the levels traded. Which is important for distinguishing between distributions and market direction.
The Volume profile is made up of the following components:
- Value area (70% of the sessions volume)
- POC (point of control or most volume traded at a level in a desired session)
- VAL/VAH (value area low and value area high, the top end and bottom end of the value area)
- HVN/LVN (High volume nodes and low volume nodes, which represent levels of high volume spikes and low volume spikes, respectively).
- Distributions (clusters of high-volume nodes that look like “bellies”)
- Ledges (a drop off between a high volume node and a low volume node, these surround distributions)
Out of these, we are going to focus on the distributions and ledges as our prime swing trading tools under the volume profile.
A volume profile distribution acts as an area of “balance” when price is within that balance, price would want to stay there, when price escapes, it looks for another balance. Which prompts a move.
Take this image of META into consideration (below). We have enclosed the distribution blow with two blue lines, from 240 down to 186. You can see that price holds the resistance and support until the level breaks and price slips through. This is what we can use for swings.
- The acceptance of support and resistance in the distribution (to maintain balance in the distribution)
- The acceptance outside of the distribution (price becomes imbalanced)
If you play within a distribution, make sure that the distribution block is large enough for a swing, in this case we have $60 of movement. If you play the move outside of a distribution and into imbalance, make sure the next possible distribution target is far away.
Using the volume profile you can play both the long and short side of the move. The bottom end (support) of the distribution you can look for calls, or equity longs. At the top end (resistance) of the distribution you can look for puts, or short equity.
2. The Volume
This is a fairly simple indicator, this can show traders what the relative strength of the move is. Volume is most often found at the bottom (horizontal) of a chart. Each candle represents the shares traded or contracts traded of an asset.
You can read all about volume on TradingView here.
The main concept we want to cover for swing trading with volume on TradingView is how heavy is the volume on the most recent move in the direction of the market.
Volume on TradingView may be color coded, but that doesn’t indicate “sell volume vs buy volume” with green or red candles. The candles’ colors correspond to that of the volume. We have to have buyers for each of the sellers. There is a difference in aggression or how large the red day or green day is in relation to the volume which can tip us off.
How we use volume for swings is in combination with the volume profile we’ve established. We want to mak e sure the move that we are looking to fade (long or short) into a volume profile distribution ledge is on weaker volume.
It’s always easier seen than explained. Take a look at the image below (SPY)
The red box is where we have the distribution ledge, where price would want to hold price out before it enters the upside for the bulls. Notice getting into that area we have terrible volume on the green days. Overall weakest volume that had been seen in a while. Rotations at the resistance block and the increase in volume signaled this is a swing short.
Using Volume you want to:
- Understand where we are in relation to a distribution on the volume profile
- Is volume increasing or decreasing into your area of interest
- If decreasing, look to take the opposite trade into the next distribution level or into imbalance.
3. Market Breadth (Oscillator)
The final indicator used to swing trade is a breadth oscillator that tells us if the overall market is overbought or oversold which can help us find temporary bottoms and temporary tops. There are two ways to look at this indicator. In an oscillator format or even a ticker symbol!
This is an indicator of the breadth of the overall market which is market strength of advancing stocks vs declining stocks. On TradingView it is called “Breadth Bottom Visualized (Breadth.app)” by bcrossley. This is the same data that is pulled from Breadth.app.
The main use of this indicator is to let us know when prices are mainly extremely oversold and are ready for a pop higher. Naturally, you can use them for overbought regions as well. This indicator is best paired with the SPY because it is based on the 11 sectors of the SPY.
In the indicator above, you can see when we get sub 20 (line) we get oversold drastically. However price can stay oversold for a while, and when price crosses back above the 20 from underneath the green lines print which suggests “long” trade is on. On the opposite side, above 80 is oversold.
*Warning* If you don’t have a really wide time frame for the swing, waiting for the green marker to show up can be detrimental to the position. I prefer looking for extreme oversell, down to 5.00-7.00 on the indicator and look to pick up longs there rather than waiting for the majority of the move to pass.
This indicator is typically used only with the SPY, which you can swing with options and equities. However, you can apply the “bottoms” and “tops” of the SPY with mega-cap tech because they’re so tandem in movement.
There is another way you can look at this indicator for breadth and it’s through a symbol. R3TW (Russell 3000 above their 20-day average).
Below is an image where oversold gets under 10, so those areas are usually long potential areas. 85-90 is the extreme oversold.
When this market tells us the majority of names are overbought or oversold, can look at the SPY, QQQ, or mega caps (AAPL, MSFT, GOOGL, AMZN, etc)
Conclusion
 Swing trading indicators in this article may not be what you were expecting, however, these are proven market internals that would force you to look at the market in a different way. Volume, Volume profile, and breadth is analysis that you need to know to make more educated decisions in the market and we teach a lot of that in our options masterclass!
For more information on options trading and a live trading room that does it successfully each day, check out the options trading community!
If you want to join with us in our live trading room, Check This Out.
If you prefer to trade more passively, check out our newsletter, trade ideas and live analysis in the Elite Trader package here > for Free News Update Click here.
The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.
