Financial Risks of Swing Trading

In the financial world there are many instruments that are being traded daily on the markets. This includes foreign exchange trading, stock exchange trading and derivative markets. Few people are interested in pursuing a career as a solo trader. This is because of the risk attached to trading. According to the website swing trading is a style of trading in which a stock is held for a length of time ranging from anywhere from as little as two or three days up to as long as two or three weeks. Irrespective of the markets that you can invest in, swing trading is a risky way of investing your money.

This type of investment is not for the faint hearted because it does not depend on the long term future performance of the stocks rather it is driven by opportunities that a market can open for the trader. The swing trader does not have to waste time because it is in the short term variation in prices that the profit can be made. The swing trader always keeps ears to the ground about any possible factors that can drive any stock price up or down. If there are negative sentiments about any stock the swing trader does not wait for the stock to hit rock bottom. They pull out the money and any signs of recovery the trader can buy the stock at a discounted value. It is these short term fluctuations in the value of shares in the market that earn the swing traders profits.

To be a successful swing trader you have to know how to correctly pick your stocks otherwise there is always a big risk of suffering damaging losses. A stable economy provides a good environment for one to engage in swing trading. Trading under such conditions means that the risk of losses is lower. This is because the changes in the value of stocks are mostly driven by unverified reports or some other external factors that can affect the companies such as the price of fuel. So typically there is no great variance in the prices of the stock.

On the other hand there is a big financial risk to the swing trader who is operating in an unstable economy. A constant rising and falling of shares with very little fluctuation presents a big risk. This is because the stocks can remain depressed with no constant fluctuations. A wrong investment in a share could mean that you will lose a lot of money.

The process of swing trading takes a number of steps which are crucial to cut down the chances of suffering losses. The first risk involved in swing trading is to enter the market at the right time. This is so crucial to the extent that traders use a number of methods to minimize the risk of entering the market at the wrong time. Some traders use averages, trends and other economic s fundamental analysis that can aid.

Next you will have to look at how long you aim to be in the market and the risk of you collapsing or making money. Since capital has already being invested it will be important to maintain it. This is because if the capital vanishes through losses you will no longer be able to trade.

According to the website  the most difficult risk that a trader will have to face is when deciding on the stop losses. Before investing any money you will have to choose a point where if you suffer certain levels of losses you have to pull out of the market. It is therefore important to ensure that when you are faced with such a decision you will have to stick at this stop loss point.

You will also face the risk of deciding your exit point time from trading. It is vital this is done at the right time because there is always a risk that you might have made more money or that you might suffer losses.

Another risk with swing trading is that of abandoning the market for an emotional and momentum based reason. If a swing trader is to follow the crowd and panic there is a chance of suffering more damages.

As has been shown the strategy of swing trading is risky from the first to the end it is therefore a market that requires seasoned investors. Traders must have a lot of experience and  understand the trends of the market.