TOP 10 TRADING RULES FOR SUCCESSFUL SWING TRADING
I have been involved in the stock market for over 15 years. I invested, day traded, scalped and everything in between. It’s been a very, very, very long road to say the least. Along my journey as a trader; I have ‘blown up’ a few accounts, went from losing A LOT, to losing a little, to break even and eventually profitable. In this blog; I will share with you the top 10 trading rules you’ll need to implement right away to become successful at trading.
I am a swing trader; so you will see the term, ‘swing trader’ or ‘swing trading’ often but these trading rules for success can be applied to any style of trading.
Before we dive into our top 10 rules for successful swing trading; let’s briefly define what I mean by ‘swing trading’.
WHAT IS SWING TRADING?
Swing Trading is a style of trading that looks to capitalize off of a securities short-term price movement. Your typical swing trader will hold a stock for a few days, up to a few weeks--no longer than a few months. The objective of swing trading is to capture "the meat" of a stock's move in a short period of time.
Overall, swing traders look to long stocks in an advancing or bull market- -conversely, they seek to mainly short stocks in a bear or declining market.
Now that’s out the way, here are my top 10 trading rules for successful swing trading.
RULE 1: DEVELOP A TRADING SYSTEM
Develop a trading system. I cringe when I reflect on my younger years (early 2000s) as a trader. Short of a miracle- no, many miracles – I’ve survived to continue trading (specifically, swing trading). You see way back then, I didn’t have a trading system in place when trading the stock market. I would enter and exit trades based on a whim, hunch, and a whole host of other ridiculously absurd reasons. It is a wonder my losses mounted almost immediately as a trader. How could it not? I was a fish in a sea of sharks operating without a system.
Today should be your day of declaration. Don’t be like me swimming in a sea filled with sharks. Declare today that going forward, you will start developing a back tested system that can make you money trading the stock market. And once you’ve developed that trading system, begin trading it and never stop.
Trading without a system can be the equivalent of buying a lottery ticket and hoping to win big. Or going to the casino and spinning the dice. You’re simply relying on chance and luck. That is the opposite of what you want to do in the stock market. You want to have a solid and robust swing trading system.
A system (back tested and proven) gives you a road map to operate within. It gives you rules and a method to trade by.
Do yourself a favor, and begin developing and trading with a system. Don’t wait until tomorrow, start today.
RULE 2: STOP OVER TRADING
Stop over trading! Stop over trading! One of the best things I did for my PnL was to reduce my trading by a significant amount. If I took 30 trades a month; I halved the amount to 15. This allowed me to ‘weed’ out the ‘okay’ set-ups and I began to focus and trade the ‘better’ or ‘best’ set-ups.
Stop over trading, don’t just take a trade for the sake of taking a trade. When you place a trade, ensure it’s a good one. Again, stop over trading.
RULE 3: HAVE A PLAN FOR EACH TRADE (TRADING METHODOLOGY)
Have a plan for each trade. All new traders do it –I did it too- they trade without a plan. What new traders fail to realize is, planning and preparation is the key to succeeding with most things in life and trading isn’t any different. When you put on a trade, make sure you have a plan. Within our premium member community we have a plan for each trade idea. We identify sizing, entry, stop-loss levels and target before we enter a trade. Doing the above almost always takes emotion out of trading and it ensures you’re following your swing trading road map.
RULE 4: AVOID HUGE LOSSES AND ACCOUNT DRAW DOWNS
Avoid huge losses and account draw downs. This is a huge one and one that gets newer traders and any trader for that matter in tons of trouble. The thing about draw downs is; once you dig yourself in a deep hole, it is extremely hard to get out of. Trading losses in the stock markets are inevitable. I experience them, ‘smart money’ experiences them; you will at some point experience them. The key is to not let them get out of control. As a new trader (swing trader) avoid huge losses and account draw downs, your account will thank you now and in the future.
RULE 5: DEVELOP CONVICTION IN TRADING
Develop conviction in trading. What do I mean by develop conviction. It means to develop a strong sense of self and belief in your abilities as a trader. Once you’ve learned and perfected your craft as a trader; you need to believe in yourself and your abilities to trade. This may not make sense if you’re a new trader but older traders who’ve traded the stock market for more than 2 years know what I am speaking of. If you have your trading system, have your trading plan, then you need to have the conviction to execute that trade when you see it. Not sometimes but ALWAYS. Develop conviction in your trading and believe in yourself.
RULE 6: FIND A TRADING COACH
Find yourself a trading coach. This goes without saying. When you want to learn to drive, you’ll find yourself a driving instructor. If you want to learn how to swim; you’ll find yourself a swimming coach. If you want to learn how to play music, dance, etc; you would find yourself a coach. This smart action of finding a coach to learn a new skill seems to somehow vanish when it comes to trading.
Most new traders; enter the stock market and begin trading without a coach or an instructor.
Can you learn the stock market on your own through trial and error? Of course you can! You can take the course that many traders have (including myself) and learn the stock market on your own for your first few trading years. You can pay that stock market tuition through your losses (how much you pay is dependent on how fast of a learner you are). I paid well over $50,000 in stock market tuition fees through trial and error.
Or you can be smart and find yourself a trading coach and speed up the learning curve.
RULE 7: MANAGE RISK
Manage your risk in trading. I have been involved in the stock market for north of two decades as I write this. I started trading at a very young age and like most new traders; I did not pay attention to risk. When I looked at a potential trade; the only thing I was concerned with was profit potential. I didn’t take into account the risks in trading and I sure as hell didn’t manage it. Many years later and thankfully, with a much better understanding of the stock market; I only think of risks when placing a swing trade.
RULE 8: AVOID IMPULSE TRADING/REVENGE TRADING
Avoid revenge trading or impulse trading at all costs. What is revenge trading? Let’s say for example you take a trade in Apple (AAPL) stock and you somehow manage to take a huge loss on that trade (about a 30% drawn down on your account). You’re rightfully upset and to ‘get even’ you want to jump into Apple again to make up for that loss. While this is a very common occurrence; you shouldn’t act on revenge trading. I find that when you approach the market from this standpoint; you’ve already lost the much needed control of trading. At this point, you just want to take the trade without a well thought out plan or system. And as we know from earlier in this article; trading without a plan or a system is a recipe for huge account draw downs and poor trading.
If you’ve taken a huge loss on a trade, something went terribly wrong. Instead of diving in head on to just make a trade; take a step back and analyze what went wrong in the first place. Once you’ve realized what went wrong with the trade, do your best to avoid it at all cost going forward. And do your best to avoid revenge trading or impulse trading.
RULE 9: KEEP A TRADING JOURNAL
Keep a trading journal. Similar to any other journal, a trading journal is a journal used to document your trades and trading journey. The information recorded can be simple or detailed. At minimum, a trading journal should record basic information such as: the trades made, allocation to each trade, profit or loss on each trade, etc. Whatever you decide to record, the idea of it is to track your trades for improvement.
WHY IS HAVING ONE IMPORTANT?
Simply put, it’s a way to record your trades. And the only way to improve your trading performance is by analyzing it. Find out more information about improving your trading performance here.
RULE 10: DO YOUR HOMEWORK
Make sure to come to the stock market prepared at all times. That means doing your homework on a stock before you buy it. Most new traders do the complete opposite. They buy a stock and they have no clue about the stock or why they are even in the trade. I believe it’s perfectly fine to get trade ideas from different sources but at the end of the day, before buying that stock; make sure you know what you’re buying and why you’re buying it.
I hope you’ve enjoyed my top 10 rules for successful swing trading. If you’re inspired and want to begin learning our easy to learn and profitable trading system; then sign-up for our course: The ULTIMATE Swing Trader. Find out more about our course HERE.
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