Swing Trading– Rules first

Rules of swing trading:

A swing trader must always remember the fact that he is risking a huge cash pile on a single trade. The consequences can be either extremely rewarding or completely disastrous. So, a swing trader cannot succumb to psychological influences like greed, ego, hope that make a trader behave like a loser, only to realize it later. I strongly believe in six golden rules whenever I pursue a swing.

If the trade moves in your favor, carry it overnight–the odds favor follow-through.

Yes. you heard it right. The prima-facie motto of the swing trader is to ride the swing. So, let the profits run for the next day. Remember that any swing will happen with a series of gap-up openings for 3 to 5 day period. Why let the profits go away when you are already in a commanding position.

If your entry is correct, the market should move favorably almost immediately. It may come back to test and/or exceed your entry point a little, but that’s OK.

You understand the point here. As said in the previous post(Usine de Largent Securities: What trader are you ?–Swing Trader), swing traders have an edge over the others because their entry is the first when compared to other traders. So, a swing trader needs to capture the momentum right at its inception and the position should immediately reflect profits. If it is not, get out of it with out any qualms. Don’t let your ego or greed make you hold a losing position.

Do not carry a losing position overnight. Exit and play for better position the next day.

Yes. A swing trade is not meant to give you a loss on the first day. If it does, you misjudged the swing inception. Get out of it and wait for another chance. Doesn’t matter how much loss you book. Simply Get-out.

A strong close indicates a strong opening the following day.

Yes. The momentum of a swing sustains for 3 to 5 days on a minimum. Every closing is as important as the next opening. The closure which is nearer to the day highs is termed as a strong closure and such a strong close will only amplify your profits the next day.

If the market doesn’t perform as expected, exit on the first reaction.

If at any given point, the market doesn’t meet the expectations of a swing, it is the time to exit. No more thinking – Just exit.

When in doubt–get out! You have lost your road map and your game plan!

A swing trader must take up a position with extreme confidence and high caution(have a stop-loss. ALWAYS). Once you lose the confidence in your trade or the position you are holding, it’s the moment you lost the trade. Get out of it. No matter you are in profit or a loss, just GET OUT.

Understand that swing trading is subjected to extreme risk and can give a trader enormous amount of profits if applied effectively.

Come back here later to learn about how to ride a bull swing or a bear swing, how to develop a cautious yet effective approach to handle a swing. until the, “Happy Trading”