Swing trading basically refers to a short-term trade that lasts longer than one day and less than a month.

Unlike day trading where people look to capture one piece of a more significant move, swing trading involves trying to capture an entire leg or swing upwards/downwards.

In this article, we look at understanding swing trading with the use of some of the most popular oscillators to pinpoint swing trade entries.

What Is An Oscillator?

Oscillators are an important group of indicators that have been embraced by stock, options, and futures traders to reveal turning points in flat markets. To “oscillate” simply means to move back and forth, or up and down.

As a trading indicator, an oscillator does this on a stock chart.

When an oscillating indicator is added to a chart, it is displayed at the bottom of the chart as a separate graph that moves along as the stock price moves along above. The movement of the indicator line goes back and forth, telling you what price is doing.

Oscillators were developed because of the challenge of identifying low or high values in the course of trading. They work under the premise that as momentum starts to slow, fewer sellers (if in a downtrend) or fewer buyers (if in an uptrend) are ready to trade at the current price.

While the best swing trading oscillators can differ for each trader, the ones we highlight in this article have worked for us and are the ones we use on a frequent basis here at Warrior Trading.

Swing Trading With MACD

Let’s begin with the Moving Average Convergence Divergence. The MACD is a momentum indicator oscillator.

It is calculated by comparing two moving averages, typically an intermediate-term moving average and a short-term moving average.

The most common MACD subtracts the 26-period EMA from the 12-period EMA.


When trading with this oscillator, always remember that momentum precedes price. Basically, this means that price is likely to continue in the same direction when significant momentum enters a market.

One of the key things you should look for when trading with the MACD is convergence. Basically, you want the indicator to make new high when price makes a new high, and vice versa.

If it fails to print a new momentum high when a stock is breaking out, the success of that breakout becomes far less likely.

Swing Trading With Stochastics

The stochastic oscillator is a popular trading indicator that is used by traders to predict trend reversals. Traders also use it to identify overbought and oversold levels, spot divergences, and identify bull or bear signals in stocks, currencies, indices and many other financial instruments.


This oscillator was developed by George Lane in the late 1950s and has become one of the best indicators for traders to use.

Lane designed the Stochastic Oscillator to be used by traders to identify the closing price of a given financial instrument in relation to high and low range stock price over a period of time.

The stochastic oscillator is measured using the %K and %D line. The %D line is what traders should pay close attention to because it helps to show major signals on the trading charts. The %K line formula is represented this way:

%K = 100[(C-L5close)/ (H5-L5)


  • C is the most recent closing price
  • L5 is the low five previous trading sessions
  • H5 is the highest price traded within a 5 day period

Here is how the %D line formula looks like:

%D=100 X (H3/L3)

Keep in mind that the D line is the slowest while the K line is the fastest. When trading with the Stochastic Oscillator, make sure to watch the D line and the price of the security as it changes towards oversold or overbought positions.

When the price moves below the oversold position (below 20 level), not only should you buy but you should also move up with increased volume.

However, when the price moves above the overbought position (above 80 level), you should begin considering selling off the stock.

Swing Trading With Relative Strength Index (RSI)

Our final oscillator in this article is the relative strength index, or RSI. This indicator was developed by Welles Wilder in the 1970s and published his findings in New Concepts in Technical Trading Systems.

It is an important  momentum oscillator that measures the magnitude and speed of price movements of securities and compares them with the magnitude of average losses and average gains.

RSI is calculated using the formula:

RSI = 100 – ( 100 / 1 + RS )

Where RS is the average gain divided by the average loss.

RSI oscillates between zero and 100. Generally, an instrument is considered oversold when the RSI is below the 30 mark and overbought when above the 70 mark.

When the RSI touches the 30 mark as it climbs from the zero mark, this tells you that an uptrend is building up and it might be time for you to look out for a possible buy.

Signals can be generated by looking for failure swings and divergences. It is also important to point out that the signals are only valid for a time when using a short-term RSI such as the 2-period RSI on a daily chart.

Some traders also rely on the RSI to identify the general trend of a stock. A short-term indicator like this is also important for small market swings.

Entry Criteria:

  • Stock is trading above 20-day moving average and the moving average is trending upwards
  • Stock is outperforming the S&P 500 index
  • 2-period RSI is below 15
  • Stock in an outperforming its sector ETF

The above criteria ensures that you are trading leading stocks in well-performing sectors.

Let’s take a look at the following example, where Visa, a blue-chip growth stock, is outperforming both the S&P 500 and the financial sector.

This would present a trade entry because the 2-period RSI is below the entry point of 15.


Now, while you can devise your own exit criteria, the research provided by Connors and Alvarez tells traders to close the trade when the stock closes above its 5-day simple moving average or the 2-period RSI cross above 65.

Bottom Line

Oscillators can give swing traders the advantage of jumping on a trend right from the start, which can help to maximize profit.

Unfortunately, these indicators may give a lot of false breakouts, but this is something a swing trader can deal with if he or she combines the oscillators with other indicators or uses trendlines to provide some confluence.

If an oscillator tells you there is going to be a reversal or breakout and you have another signal confirming it, that could be an excellent setup for a trade.

The oscillators we have discussed in this article aren’t the only ones out there, and swing traders have a lot of options for setting up some of them.

Try out a variety of oscillators, set them up, and go through your charts to look for indications of breakouts.