Swing trading mainly requires a lot of practice to yield satisfying results. But some basic disciplines for trading can make the journey more fruitful.
So, before you start swing trading or even before you continue that journey, make sure that you keep in mind the following 6 swing trading tips…
1. Equip Yourself With a Plan
A trade without a plan will not unfairly be considered a gamble. Before you enter a trade, establish a plan; otherwise, it can cost you.
Possibly, a worse thing beyond just losing money from a trade because you had no plan is not knowing what went wrong.
Before you create a plan, you need to answer one very simple question… Why do you want to enter that trade? This will provide you with clarity of thought and you will have more confidence in yourself.
Afterward, simply decide when you will enter that trade and when you will exit it. Knowing precisely when to exit it is as important as knowing when to enter it. When it comes to selling, it might be preferable to set a stop-loss order to limit your downside.
Also, make sure that you are very clear about the maximum weight allocation to a trade before you enter it. A fast beneficial direction of the stock may make you enthusiastic and motivate you to buy more. If it ends badly, you stand to lose more than you had predicted.
All in all, be certain that you know what you’re doing every step of the way by creating a plan. That way, you can blame that plan if things don’t go well and learn from your experience.
2. Keep an Eye on The Market
If you’re a swing trader, then doing anything beyond analyzing stocks may not make much sense. But I would encourage you to at least have a clear idea of how the market is doing to accompany your analysis.
Even if you don’t plan to hold your positions for too long, understanding where the market is going at any point can help you structure your trades in a way that will set you up for success.
After all, let’s not ignore the fact that stocks, in particular, are correlated with each other; meaning they tend to move in the same direction more or less at any given period of time.
3. Mix it with Fundamentals
Swing trading, unlike day-trading, allows for a more diverse set of approaches. Just like keeping up with the market, fundamental analysis can be a useful addition to technicals.
Fundamental analysis is the type of analysis you will find long-term investors apply. It has to do with the position of the business itself in the market and what financial statements indicate about a company’s profitability.
Though it is supposed to serve better long-term investors, spending a few minutes to look at key metrics about the underlying business of the stock you want to buy can add an extra layer of protection.
For example, a company may be having an earnings report soon and have been performing badly last year. Trading such a stock during such a time could introduce some surprising factors that move the price opposite to the expected direction.
4. Get Familiar with A Group of Stocks or a Specific Market
Technical analysis is hard as it is when you first begin as a swing trader. When you apply it to stocks within industries that you don’t understand, it can be harder.
Considering getting familiar with a set of specific stocks or at least a market so you will grow more confident analyzing stocks using technical indicators.
One could argue that doing so could be as important as keeping up with the market as a whole.
5. Back-test… A Lot…
This is one of the most important swing trading rules. I can’t emphasize it enough.
When you first get into swing trading and once you learn technical analysis, you may want to start trading immediately. I’d advise you against that.
Try to be patient and understand that as a beginner you’re very prone to losing money. Form a hypothesis first about the trade you want to enter and the potential outcomes. Then backtest it.
When you backtest a trading model, you can essentially test whether it has any validity. This way, you can grow more confident and eventually be more successful once you trade.
Besides, back-testing can help you learn without pain; without losing money.
6. Stretch your Holding Period
Most of the time, big gains are not realized within days. And the beauty of swing trading is that the analysis you apply to stocks doesn’t impose any limitations on how long your holding period should be.
As you trade, be careful to notice whether or not you’re reaching your goals. Beyond the simple fact that you will need to practice a lot to do so, you may want to also consider stretching the time-frame in which you hold your stocks.
All in all, there is one fundamental principle that underlies all of the swing trading tips we outlined here: patience. You simply need to take your time and always try to learn something with every trade; no matter whether you made or lost money.
Now, I thank you for taking the time to read this article, and please share it with others if you found it useful.
Also, don’t hesitate to ask me anything you want down in the comments.
Take care and trade safely…
Disclaimer: This information should not be viewed as financial advice. You should consult a financial advisor or do your own due diligence before you invest. The owner of this website and author of this article are not to be held liable for any undesired result by anyone who uses this information that is provided here in any way.
