Some Rules for Swing Trading
Always have a stop loss set in place.If you can’t watch your stocks in real time, then this is a must. Any random news event can make your stock move in an undesired direction so you have to be prepared for situations like this. If you use a mental stops then you must make sure you get out at that stop.
Never remove your stop loss. The first stop is usually your best one even if it shakes you out of your position. Remember, you can always get back in if it sets up again. Small losses are better than big losses.
Trade with small risk. I like to use the 1% rule when it comes to swing trading. The 1% rule means to only risk 1% of your trading capital per trade. Example: You have a $100,000 trading account. Then on every trade you are allowed to risk only $1,000. Let’s say you plan to buy stock in ABC and the trigger price is $43.75 and your stop price is $2 dollars lower. You can only purchase 500 shares worth so that your risk is not more than a $1000 dollars.
Never chase if you miss a stock for whatever reason and it’s trading much higher than the original entry, then just let it go. Should the stock pull back and give you a second chance to enter you can do so. Never chase a second or third day move. If you miss a move then just be okay with it, but chasing is not a good strategy.
New traders should risk less than 1% of trading account. The reason being because you need to master the emotional side to trading as well. Better to learn with very small risk until you fully understand yourself and you’re trading.
Let small losers be learning lessons. It’s important to have a realistic approach to trading and that means there will be small losses. So don’t dwell on them learn and see what went wrong, adjust and modify to the market.
Earnings. Companies have earnings every quarter. For swing traders do not hold position that are about to report earnings. Always check when the next earnings date is. As swing traders don’t hold into earnings because of the volatility and gaps in price that may happen.
A time to be aggressive and a time to sit on hands. There are periods in the market when Swing Trade setups don’t readily appear nothing is really good to take positions in. So it is better to wait until market conditions dictate better setups in Swing Trades.
Discipline. You must be disciplined all of the rules above won’t help. Because it is critical to have discipline in trading to do what is necessary. Discipline is what separates the professional traders from the amateurs. If you don’t have discipline, then you will trade on your emotions and that will not end well.