Swing trading can be very rewarding yet at the same time very risky. In the stock market, and probably in the whole investing world, the level of risk is at par with the potential earnings that it may promise. Swing trading is a risk lower than day trading but is far more riskier than buying and holding stocks for a long period of time, or as what most people understand, investing.
The risk involved in swing trading are numerous, but at some point can be minimized. Here are some risks involved in swing trading, and some tips on how to avoid or at least for the most part minimize them.
1.) Buying stocks and holding them for a short period of time is risky because most of the time, stocks take some time to surge and realize significant profits. Have you ever experienced buying a stock after some rumor or news and got disappointed because it seemed not to move at all and once you decided to take the exit, it just surged? Patience is indeed a virtue and in trading, it is a key. Because you’ll only hold stocks for probably a week or a month long as a max as a swing trader, you may miss the golden opportunity when your stock will surge.
2.) Swing trading may also result to too much trading or buying or selling too much. Swing trading may result to day trading which, as far as success rate is concerned, results to more losses than gains. Discipline is very important in trading and one way to discipline yourself is to trade with a plan. Trading without a plan is just driving a car at night without any headlights. You’re certain about your goals or where you’re going but you don’t know which way to take. It will result to accidents.
3.) The difference between stock trading and gambling is that stock trading can be controlled with knowledge and proper game plan. Without both, trading can be gambling. Avoid committing the same mistake that most people make by thinking that the stock market is a magic wand that may give them instant riches. Take note that it takes something in order to earn something in return and in the case of the stock market where the potential gains are great, the required knowledge, guts, and probably some luck is enormous as well. Think of it as the price to pay in earning great.
4.) Swing trading is dependent on the market. If the market is not doing well, most stocks are bound to go down hence as a swing trader, you may consider to stay on the sidelines while waiting for the market to get back on track. Swing trading is actually a strategy and it will not work on day trading thus if you’re accustomed to being a swing trader, never try being a day trader not unless if you employ the game plan of a day trader. You can never play Karate on a Taekwondo tournament, thus you should play in accordance to the rules or better putting it, on what’s best suited.
5.) Another risk is to get emotionally attached to stocks that may quickly surge in just a day or two. Such surges can give really great quick returns such as earning at most 50% in a day or ceiling. Many swing traders immediately jump into the pan and day trade with the hopes of earnings some quick gains only to realize that they got in too late and just gave profit to more experienced, cunning, and knowledgeable day traders. If you’re a swing trader, be a swing trader. There will be some stocks that will surge greatly in just a day or two. That’s just how the market goes. If you want to jump in, learn tricks and tips of a day trader.