Swing Trading for Dummies Summary (C14): 10 Simple Rules

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Swing trading can be an enjoyable way to earn a living, but it is still a business.

If you let your emotions take control, which happens to many people, then your chances of success are low.

To combat this, you need to know the rules of the game and stick to them.

Here are ten of them. They are simple, and perhaps boring, but ignoring them will make your journey to success that much harder.

Plan your trade and trade your plan!

A trading plan is the swing trader’s version of a business plan and it is your roadmap to success. Within your trading plan you should answer:

• What is your time horizon (days, weeks, months)?
• What type of securities do you trade (small cap stocks, crypto, forex, etc.)?
• Do you go short or long or both, and when?
• How much capital do you allocate for each position?
• What are your entry signals?
• What are your exit signals (for profit, loss, and stagnant trades)?

Think carefully about all these questions and write down the answers. Don’t think you don’t need to write it down. If it isn’t in writing, you are much more likely to stray from it.

You can turn it into a checklist to ensure that each trade you enter and exit meets your strict requirements.

Going against the general market is like swimming upstream. It is much easier to profit when you go with the flow.

When the market is bullish, go long. When it is bearish, go short or stay out. And when it is trending, range trade.

Additionally, ride the waves of industry leaders (or laggards if going short). The industry group is more important to success than the individual security.

A good rule to follow is to only trade long within industry groups that are above a rising 20-day moving average.

When it comes to trading, emotions are your enemy #1!

The best way to handle your emotions when trading is to follow your trading plan as if you are a computer program that cannot stray from it.

Do not let FOMO and greed take over.

Another emotional aspect to watch out for is getting attached to trades. Perhaps you’ve made good money from a stock before or you just like a company because you use their product. Don’t let that affect your decisions.

This attachment can also occur when you tell people about what trades you are in - so don’t. Keep your trades to yourself and it will be easier to cut your losses when they go against you.

Your personal well being affects your emotions a lot. Stay in shape and get enough sleep and you will be able to handle your emotions better. If you have an emotional external experience (e.g., breaking up with your partner), or you just find yourself getting emotional about trading in general, stop trading for a while.

Diversification is what will save you from losing it all.

Hold at least 10 different positions in various sectors.

You can also diversify by holding different asset classes, e.g., equities, forex, crypto.

Additionally, having long and short positions reduces market direction risk.

For every trade, determine the point for exit if the trade goes against you.

Set your stop loss at this point and remember to never use whole, round numbers.

Use logical exit points (such as a support level) and do the math to ensure you never risk more than 1% of your total capital on any single trade. This means that the farther away your stop loss is from your entry price, the smaller your position size will be.

Before entering any trade, you must be clear on when you will exit for profit. This means you must either set a profit target or a technical signal.

Profit targets are often based on support and resistance levels, after a predetermined gain, e.g., 10%, or based on a chart pattern. You can set this to happen automatically with most brokers.

Exiting on a technical signal allows you to ride trends longer, but you must exit manually. Make sure you know beforehand which technical signals you will exit on, e.g., closing below the moving average or a sell signal from a technical indicator.

When trading outside market hours, always enter a trade using limit order as opposed to a market order.

Place your buy limit order at a price level slightly below the previous closing price.

Using limit orders is a good idea when trading during market hours too.

A hard stop loss order is one that you set with your broker to happen automatically, as opposed to just having it in your head.

There are several big benefits to using hard stop loss orders:

• They help in fast moving markets. If the whole market turns it can be difficult to sell everything in time. Stop loss orders do it for you.
• They limit your downside.
• They mitigate your emotions.
• They allow you to get away from your computer.

A trading journal is your number one tool for organizing your thoughts and improving your trading plan.

Update it after every single trade and review it at least monthly to see what you have been doing right and wrong.

If you don’t enjoy the process of swing trading, it’s best to find another way to make money.

If you dread having to research trades, recording your journal, and everything else that goes with it, you are more likely to rush your decisions, and that won’t end well.

It’s like any job in life. Of course you can have bad days, but overall, if you don’t enjoy doing it, then do something else. There are plenty of ways to make money in this world.

Read the next chapter here.

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