Swing trading can be a great way to profit from market upswings and downswings. However, mastering it takes time and a lot of effort. In order to make it as a swing trader, you have to learn some rules, from basic to advanced, both technical and psychological.
Visit the Beginner guide to: Swing Trading Bitcoin
If you deeply want to be a successful trader, you should stick to these powerful rules for swing trading.
#1. Swing trade for accuracy, not for money.
Your motivation should only be the well-executed trade.
Money has to remain secondary in your mind to avoid letting it poison your thoughts.
Indeed, a “good trade” has nothing to do with a trade that makes you money.
You can make a perfect trade and still lose money…
This is the cost of business.
The goal is to be an accurate trader, not to become wealthy overnight.
As a consequence, we have to keep our focus on the market, not on the money.
You should aim for the feel-good factor that a good swing trade will bring you.
The money will always follow if you can remain consistent with your rules.
#2. Forget about the ego.
Don’t let your ego influence your decision making.
Swing trading is about following what your technical analysis is indicating to you.
It’s really about what you see.
Not what you think should happen.
Otherwise, you are playing the wrong game.
Do you think it’s better for your portfolio to be right, or to make good swing trades?
You need to silence your ego in order to listen to the market…
You should always get out of losing positions quickly to avoid having to go through the humbling experience of losing it all.
#3. Stand apart from the herd.
You have to swing trade ahead, behind, or contrary to the crowd.
Don’t be a foolish contrarian thinking that being the contrarian of a contrarian is smart.
Being a contrarian simply means to go against the dominating sentiment.
Buy heavy when the crowd is in extreme fear.
Sell when euphoria kicks in.
First in and first out.
Take the money before someone takes yours.
In trading, your success depends on the misfortune of others.
#4. Swing trade only when you have identified a confluence.
Don’t use a technical tool as a stand-alone tool.
Always look for a confluence of elements to confirm your bias.
First, it will confirm whether it is your bias taking the trade or your system.
Second, it will inform you about the probability of success of your trade.
Confluence to enter a long could be a high timeframe support, with a divergence on RSI tagging the lower Bollinger band.
The market is trying to tell you something. Listen. Execute.
#5. Know when to swing trade and when to go fishing.
It is impossible to trade every day, all day of each year.
Because swing trading is not about making money every day.
It’s about executing your trading system correctly.
So first, you need to have a system. Otherwise, everything is a mistake in your swing trading activity.
Second, you need to follow the signals of your system.
You only have to swing trade when your analysis and your trading system tell you.
If your system doesn’t trigger a trade, just keep your mind fresh and on the market, but keep your money out of it.
Go fishing, read a book.
#6. Know your style and swing trade on your strength
What is your style? Intraday, swing, positioning trading?
Are you ultra-risk averse or can you handle risk easily?
Are you good at reading price? Or do you like to be assisted by multiple indicators?
Find your style.
Act on your strengths only. Don’t waste too much energy to improve your weakness.
If the thought of putting money on the line makes you unable to sleep at night, then, sell to the sleeping point, as Jessy Livermore advised.
Swing trading like all other trading styles is about handling risk with discipline.
If you want to gamble, you can always go to Vegas.
If you want to use discretionary capital to make well-executed trades based on technical analysis, then consider trading as a profession.
A good swing trader stays disciplined.
Trading is hard to master.
You will learn more about yourself and how your belief system is wired while swing trading than in any other job.
The ability to master your mind, your body, and your emotions is the key to trading.
You can have the best technical analysis available, but you will still lose as a trader if you can’t stay disciplined.
You are here for 1,000 trades.
Not for a single hold-up trade.
Emotional discipline will help you to trade consistently and profitably.
Do you often go to a casino?
No, maybe once or twice a year.
A disciplined trader always comes back to trade another day, because his discipline gives him the liberty of not going bust.
Avoid the “humbling experience” by staying away from wishful thinking.
A market won’t rise or fall because you “hope” so.
Wishful thinking and holding a losing position are probably the two easiest ways to end your trading career early.
The reality is on the screen.
Not in your mind.
When the market hits your stop-loss level, get out.
Don’t use a mental stop-loss.
Because a mental stop-loss makes you revisit the trade and asks you if it’s still valid or not.
If a trade hits your stop-loss point, exit the trade.
With solid money-management skills, you can have a loss and still keep swing trading.
#7. Let your profits run and cut your losses quickly.
Lose as a poor man would, win as a rich man would.
When your trade triggers a loss, get out.
At the same time, know how to let your profits run, but don’t be greedy.
If you swing trade using technical analysis, you’ll determine your entry and exit points before you place the trade.
Once the price hits your profit target, get out.
Don’t be greedy.
“You’ll never go broke taking a profit.“
Learn the lessons that your losses teach you.
A losing trade is here to teach you something.
When you have a losing trade, it’s because of some flaw in your analysis or your judgment, or simply a matter of probability as you can set up everything right, but sometimes the numbers will work against you.
Either way, you have to take responsibility for it.
Don’t waste your energy blaming the market, screaming for manipulation, or anything else.
You made a losing trade.
Focus on it.
Determine what went wrong objectively, then adjust your thinking, if necessary.
And commit to re-evaluating if you would take the same trade again.
You can only make a mistake once.
The second time, it would have been the result of your own choice.
#8. After three losses in a row, reduce your risk to half.
If you’ve just had three losing trades this is not the time to take on more risk.
You have to become extremely disciplined to make it as a swing trader.
At first, you should sit on the side-lines for a moment, go outside, take a breath.
Then, come back and watch the market.
Clear your head.
Halve your risk.
Then, take another trade.
Once you have a winner, go back to your standard risk profile.
#9. Swing trading is not day trading. Never look over a chart and project what you want onto the market.
We could have split this swing trade habit in two:
- If you have to zoom into your chart for a signal, you should know it’s simply not there. Don’t force the trade. Wait for the obvious technical signal.
- Once you put on a trade, leave enough room to let it develop.
You have no reason to sit at your computer the whole day, monitoring each tick in price.
If you do, especially as a beginner, you are going to get confused by low timeframe noise.
Because a trend depends on the timeframe for which you are analyzing the trend.
The market moves simultaneously on all timeframes.
A 15 min uptrend, could simply be a retracement on the 1 hour within a strong downtrend.
The price movement aligns with specific time cycles.
#10. Read your own emotions.
If you journal your thoughts as described in How to think like a Millionaire you can document and understand your emotions better than others and use it as an edge.
Analyze how your emotions work with the markets.
Some traders find it easy to be neutral, many traders are emotional and react emotionally to trades and market situations.
Even if you are emotional, like the crowd, you can use your own emotions to your benefit.
When you feel extreme fear, you could look for long signals.
When you feel euphoria, you could look to take profits and reversing your bias.
The best long swing trade will always be a setup that scares you.
It’s good to be scared to buy as a swing trader when an opportunity arrives.
Why? It means that the crowd is also scared.
So, nobody is on the same side of your trade.
Unfortunately, you can’t expect a trade to feel good until you take your profit.
What at first brings pleasure, in the end, gives only pain.
What at first causes pain, may end up in great pleasure.
A swing trader only catches the essence of a price move.
As a swing trader, you are not trading to catch bottoms and to sell tops.
Your job is to catch about 60 to 80% of the whole move.
How do you achieve that?
By following price action and market structure.
A downtrend keeps being a downtrend until price takes the high that created the bottom.
An uptrend keeps being an uptrend until price takes the low that created the top.
As a consequence, your job is to buy the first dip after the market structure of a downtrend is broken.
And to sell the first sell-rally aftermarket structure of an uptrend is broken.
Bonus 1. Swing trading is a trend-following job.
The more an asset bores you, the more it is going to soar.
The big move hides beyond the extremes of price boredom.
Finding and riding a trend is the best tool you could add to your toolbelt.
Your job as a swing trader is to enter in mild times when people are scared and not greedy.
And to exit in wild times when people are greedy.
A trend relaunches itself several times but reverses only once.
You need to know how to identify the reversal in a trend.
(Subverto post of this week is about trend reversal, so we could put the link of the post here).
Bonus 2: Never lose respect for money.
Successful traders have an innate respect for money.
It’s not because you had a big day, a big week, or a big month that you should lose respect for money.
Never forget you can lose money just as fast as you got it.
Always stay humble.
Don’t let the market humble you…
Discover how to manage your emotions with our Academy Post