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Setting ‘stops’ WILL result in fewer winning trades.

But this is a necessary price to pay in order to carry out a sound risk management plan.

In the long run, you will be better off using stops than not.

Swing trading is a business, and it must be run like one.

In order for any business to increase profit they must cut costs and increase sales.

As a swing trader, one of your biggest costs are losing trades, and your sales are winning trades.

The aim is to keep losses as small as possible in comparison to your wins. This way, even if you lose more times than you win (which isn’t unusual), you will still make money.

A stop-loss order will automatically close a position once a certain price is reached.

A simple stop-loss triggers once the price is reached and will make the trade at the next available price.

A stop-loss limit order means that the position will only be sold at the specified price limit. This can be advantageous to ensure certain price criteria are met, but it also means that if the price is gapped over, the buy or sell order will not execute which will leave you more exposed.

There are many different ways to play the trading game with many different strategies.

No matter what your strategy, keeping a successful trader’s mindset is paramount.

A successful trader is never the victim. When you lose a trade, you must not blame it on the market or any other outside forces. Realize and accept that you are in control of your situation, and you alone have the power to turn things around.

Trading is ultimately a game you play with yourself. You are the only one which imposes which rules to follow - that is outlined in your trading strategy.

It is very important to create these rules (your strategy), follow them, and refine them as you gain more experience. That’s the only way to win the trading game in the long run.

A ‘free trade’ occurs when a position you open hits a price level when there is no more risk of a loss.

In other words, for a long position, the price of the asset rises enough that you are able to move your stop-loss up to your entry price level.

Doing this means that even if the trade turns against you, at the very worst you will break even. You can also refer to this as the break-even point.

Initially, you want to set your stop-losses quite tight to limit potential losses.

However, once your stop-loss has moved up enough to reach the break-even point, you should give your positions plenty of room to breathe.

Once the position moves more in your favor, you can raise the stop-loss a little more to lock in profits, but don’t get too close unless you see clear signs of reversal.

You could also use a trailing stop, where the stop-loss will automatically move with the price. Again, don’t set this too tightly.

As a general rule, the longer a trade is in a loss, the less likely it is to make a profit.

To combat this, you can set a time limit for when you will cut your losses, even if your stop-loss is not reached.

For example, if you are trading using the 4-hour chart, then if the position is still at a loss in 24-hours (6 candles) you will automatically sell.

This allows you to free up cash to place in more profitable trades.

Even a winning trade can cost you money if the capital could be used on better trades instead.

Never risk more than 1% of your trading capital on any single trade.

Additionally, it is better to never use leverage.

Instead, grow your capital slowly but surely.

Also, consider carefully the number of positions to hold open at any one time. Every time you open a new one, it means less time you can devote to focusing on each open trade.

Not to mention that markets are highly correlated. If you have many positions open and the market as a whole turns against you, then you will just have many losing trades.

The author recommends a maximum of two open orders at any one time.

Read the first chapter of How to Make Money in Stocks here.

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