Swing trading is becoming increasingly popular among traders (and even investors) because of high-speed internet and low commissions.
However, most traders make costly mistakes because they don’t fully understand how swing trading works.
What Is Swing Trading?
Swing trading is a method of technical analysis to help you spot short-term directional moves that last over a few days (or at most, weeks), but generally less than 20 days.
Why Is Swing Trading Popular?
It allows you to take advantage of the strong short-term moves created by the “Big Boys” who are just not nimble enough to move in and out of the market quickly.
It also allows you to avoid all the market “noise” of short-term timeframe, eg. 5 min or 15min.
Traders must fully understand what exactly is swing trading before they can use it to their advantage.
In this post, I’ll share 7 common swing trading mistakes that traders should avoid so they can tap on swing trading’s full potential.
Let’s get right into it.
7 Common Swing Trading Mistakes To Avoid
1. Watching the market too closely, too often
Watching a screen, observing every small movement all day can be damaging to both your financial and psychological health.
You might end up making many small trades out of impulse and anxiety.
And that’s the last thing you want to do if you’re swing trading.
As a swing trader, you must give the stocks sufficient room to “breathe”.
Which brings us to the next point…
2. Making many small moves without much thought
Novice traders tend to want to trade every small move without looking at the bigger picture.
A good trader does not open a trade in a weak position.
They only want to open a position when the odds are stacked in their favour. This will enhance the overall profitability.
They only trade whenever there’s an obvious trend. If there is none, they just stay on the sidelines.
3. Getting distracted by a stock’s fundamentals
Swing traders make decisions based on the price at any moment.
The price is what pays you the profits.
Don’t make reactionary trades just because of an event relating to the stock’s fundamentals.
A stock’s fundamentals are only a distraction to the swing trading strategy.
Some swing traders make hasty decisions and they pay the price (literally).
Always remember: When swing trading, our focus is NOT in the long term. Speaking of which…
4. Lacking patience and discipline
Unsexy, boring, and basic as it sounds, patience and discipline are the key ingredients to being a successful swing trader.
What separates a novice swing trader and profitable swing trader is withstanding the urge to make hasty decisions.
All the common mistakes mentioned up to now can be avoided with patience and discipline.
But focusing on the wrong aspects of swing trading can get us into trouble, nonetheless.
5. Focusing on profits without managing risk
This might sound counter-intuitive but swing trading is about managing your risk, not focusing on profits.
Without proper risk management, greed will get the better of any trader.
Focus on becoming a good swing trader and the profits will come naturally.
It’s an obvious fact that most traders overlook when they’re blinded by the eagerness to make money.
Manage your risk well, cut losses, and minimise losing trades.
Rinse and repeat.
6. Trying to pick tops and bottoms in the market
Throw all your assumptions about predicting the top or bottom of a stock out the window.
No one knows for sure when a stock’s price will swing the opposite direction. No one.
Undoubtedly, picking the top or bottom of a stock can be incredibly rewarding.
But it comes with immense risk, which is what we want to avoid as much as possible.
In swing trading, our objective is always targeting modest returns of 5% to 10% gains.
This might not seem much but when done consistently, they compound into impressive overall returns.
7. Trying to look for a “Holy Grail”
Last but not least, most traders buy into stock trading programmes hoping that they find the “Holy Grail” to almost 100% accuracy in predicting trades.
The cold hard truth is…
The only “Holy Grail” System is a proven system that fits with your temperament and objective.
There is no infallible system.
If there is one, the market would have disappeared as the infallible system would have mopped it all up.
Losses are a part of trading. We need to face them squarely and not be crippled by them.
Now on to you
If you haven’t tried swing trading yet, what are the common trading mistakes you’ve made?
If you’re using swing trading strategies, did I miss out any common mistakes you know of?
Hope to see you.