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Imagine earning a living without having to trade time for money.

Swing trading is one way to do that.

Instead of getting paid for each hour you spend in front of your computer, you get paid based on the quality of your trades.

But it isn’t for everyone. In fact, most people aren’t suited to the life of a swing trader.

Because if you are not disciplined, you are more likely to lose money than make it.

Swing trading is the art and science of profiting from the short-term price changes of a security.

These movements can be anywhere from a few days to several months.

A swing trader will wait for a low-risk opportunity and hopefully profit from any significant move, or ‘swing’ in price.

Warren Buffett is the classic example of a position trader. He doesn’t care about short-term price swings. Instead, he will buy and hold shares of companies that he feels will increase in value over the long-term.

Position traders, also known as buy-and-hold investors, have a much smaller turnover rate (the rate at which their entire portfolio is bought and sold) than the swing trader. Usually below 30%.

Most people are better suited to position trading, but for those of you with the interest and discipline, swing trading can provide you with a current income.

Shorting a stock allows you to profit from a price decline, as opposed to going long where you want the price to rise.

This can be good because it means as a swing trader you can still make money in a bear (declining) market.

But shorting comes with extra risks that buying doesn’t have.

When you buy a stock, your loss is limited to the amount you invested in the trade. If you buy $100 of stock, you can never lose more than $100.

When you short a stock, your potential loss is unlimited, because a stock can theoretically continue to rise.

Day trading is like the polar opposite of position trading.

A day trader buys and sells securities on a minute-by-minute basis and will settle all positions before the end of the trading day.

They never hold positions overnight.

A position trader focuses on the fundamentals of a company. Day traders are the opposite. They care much more about the psychology of the market and base most of their decisions on the charts.

The life of a swing trader can be quite flexible. It’s up to you to decide how much time you want to put into it.

You can easily swing trade while still holding down a full-time job. Or you could make swing trading your full-time job.

A full-time swing trader will spend several hours a day researching and making trades. If this is your goal, know that it won’t happen quickly. Most people will need to spend several months developing the skills needed to earn a full-time income as a swing trader.

But learning the skills to become a successful trader isn’t the hard part. The technical skills are actually quite easy to learn.

The hard part is controlling yourself. Emotions can take over if you are not careful, and that will lead to very costly mistakes.

It is strongly advised to start slowly. If you want to eventually become a full-time trader, do it part-time first while keeping your day job. When you don’t have to rely on swing trading for your income, it takes a lot of pressure off and it is easier to regulate your emotions.

Paper trading is like trading with Monopoly money. Many brokers will allow you to open a trading account that functions exactly the same as a real account, but they load it with pretend money.

Paper trading is a great way to learn how to swing trade and to test out strategies, but the emotional factor will never compare to when you put real money on the line.

A trading plan is like the business plan of your swing trading business.

It is extremely important to have a trading plan, and even more important to stick to it.

Plan your trade and trade your plan!

Write down your trading plan and use it like a checklist when making trades.

But what goes into your trading plan?

• What securities you will trade, e.g., small-cap stocks, commodities, currencies
• Trading long or short or both
• How you will screen for possible trades
• Buy rules
• Sell rules
• Position size
• Diversification
• Emotional management

Don’t worry if none of these things makes sense to you right now. You will learn everything in detail throughout the book.

To stay on top of your game you must continue to educate yourself and grow emotionally.

Whenever you buy a position, take the time to really understand what you are buying into.

When a trade goes against you, which will happen often, cut your losses fast and analyze what went wrong.

Do your own research. Never buy on the opinions of others. No-one can predict the market. Try to stay away from the noise.

Read the next chapter here.

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