If you’re trading stocks, you want the wind at your back, which means you want to make moves that move the market as a whole. You ought to be almost totally invested if the market is in a robust bull market. Additionally, you ought to hold cash if the market is in a bear market (or seeking bull markets in international markets). Additionally, markets may be in trading ranges, in which case you can take advantage of buying solid setups while minimizing risk due to the absence of market direction.
Trading with the market as a whole, however, is only a portion of the narrative. The experienced swing trader understands that industry sectors affect a security’s returns. The stocks in an industry group are likely to follow suit when it is at the top of the pack, as determined by the High Growth Stock Investor software. On the other hand, if an industry group is at the bottom of the pack, its stocks are likely to do the same. Regardless of their fundamentals, the majority of tech companies were impacted as tech equities lost popularity in late 2018. (see the examples in the following figure).
Due to lofty valuations and worries about an economic slowdown in late 2018, the majority of shares in the technology sector collapsed simultaneously.
Keep your emotions out of your trading
Emotions have an impact on people. However, it can be dangerous to let your feelings dictate your trading choices.
In actuality, your emotions could be your worst opponent. You may say that you’re your own worst enemy. Traders who lose billions of dollars at major banks frequently begin by losing a little sum before trying to make up for it or establish their innocence. Their inability to manage their emotions is their greatest shortcoming, not their analysis or their understanding of the market.
It takes practice to learn how to control your emotions, and once you can, you’ll never have to worry about it again. Instead, it’s a never-ending conflict. Gluttony and dread are the two emotions you’ll experience the most of. You’ll want to hold positions longer than you need to in order to generate more gains when the markets are moving strongly in one direction and you’re riding that wave. And you’ll want to take additional risks to make up for those losses when markets rage in the opposite direction and your earnings vanish.
These feelings are impossible to control scientifically (that I know of, at least). A Spock-like figure that is always logical and never allows emotions to get in the way of his trading, in my opinion, would be a fantastic trader. Vulcans do not actually exist; Star Trek is a fictional series. Therefore, as a trader, you should thoroughly evaluate your deals and try to be as composed as you can. If you see your emotions are influencing your trade, have the self-control to push yourself to stop.
Diversify, but not too much
You need to maintain a varied portfolio of positions if you want to swing trade. You should hold at least ten different positions, all of which ought to be in various industries. And if you can, mix up your swing trading with various asset classes. Include ETFS Physical Gold, developed market equities, emerging market equities, and technology stocks, for instance (assuming these securities meet the fundamental and technical criteria of your strategy).
However, a good item can be harmful in excess. Too much diversification, such as having 30 or more positions, is possible. In order to achieve significant gains, a swing trader needs focus. The closer the returns of the portfolio are to market returns, the more positions you keep.
Manage risks: Know your level of risk
Setting a stop loss threshold and determining your risk tolerance go hand in hand. Setting a risk level is an analytical phase in the process whereas entering a stop loss level is an order entry step. The risk level you determine in this phase is frequently where your stop-loss order will be placed. Your risk tolerance is the point at which you are compelled to admit the falsity of your initial trading hypothesis. Although you can base your risk level on an automatic percent level from your entry order, I don’t advise doing so because it pushes a reality onto the market that may not actually exist.
Say, for illustration, that you automatically sell out of a position when a security decreases by 5%. However, why should that security remain inside this 5% range? What if the security has a 3% daily volatility? Based just on standard volatility, it might reach your risk threshold in a day or two. Your risk level should be used to determine your stop loss level. The requirements of your trading plan, however, will determine how much risk you should take. Use a moving average instead of an obvious support level, but be ready to modify your stop loss level frequently because the moving average is always shifting.
Your position size should be less the wider your risk level is (i.e., the further it is from your entry price). By following this general rule, you can avoid putting more than 1 to 2% of your wealth at risk because you might be investing in an extended security. Swing traders that concentrate on trading ranges find it simpler to gauge their level of risk. They’re seeking for a continuation of a trading range that already exists. Therefore, a breakthrough above or below a level of support or resistance would indicate the end of the trading range. The swing trader’s most evident risk level is that resistance or support level.
Set a profit goal or a technical exit to reduce risks
A previous support or resistance level is frequently the foundation for your profit aim. Some swing traders have predetermined profit objectives where they sell half of a position when it makes a gain of 5% from entry and the other half when it makes a gain of 10%. Your profit objective may be established by the projection price implied in the chart pattern when trading using a trading pattern like an inverted head-and-shoulders pattern.
Instead of using an existing support or resistance level, I prefer to use a technical indicator’s indication to take winnings. Certain equities can have very profitable trends that last longer and go further than expected. Therefore, I like to sell when a security crosses below an indicator, such a moving average, or when a trending indicator issues a sell signal.
Use limit orders
Use a limit order as opposed to a market order when entering or terminating a trade. While a market order can be filled at any price, a limit order guarantees that your execution will take place at the price you set. You won’t typically need to enter a market order unless you’re in such a rush to engage or exit a deal. In addition, you probably won’t purchase or sell at the beginning or end of the day. Be patient, and you might end up with a better deal than you anticipated.
Utilizing limit orders will also enable you to save money by reducing market impact costs. The likelihood that your buy or sell order will cause a security’s price to change higher or lower depends on how big your order size is in relation to the typical daily volume of trading in the asset. If you place a market order on a thinly traded stock, the execution price may be 2 to 5 % higher or lower than the price at which you placed the order.
At a price level close to where shares have recently traded, you can place a limit order. The goal is to keep the average share price under control. If you’re buying, place a limit order slightly below recent trades; if you’re selling, place a limit order slightly above recent deals.
Use stop-loss orders
You could believe that stop-loss orders are only “training wheels.” “I’m a grownup. These bothersome stop-loss orders are not necessary. When I detect weakness, I can leave. Unfortunately, thinking such way could result in your death (financially speaking, of course). The stock market is not a place to play or discover one’s identity. Let your neighbourhood sports club handle that. Even if you monitor the market constantly, seven days a week, stop-loss orders are still important for the some reason.
Keep a trade journal
Your ideas and the rationale behind your decisions are organized in trading diaries. After each deal you make, they need to be updated. Delaying the entry of a trade into your notebook may cause the trades to eventually accumulate and overwhelm you, leading you to decide to stop updating the journal.
thanks for remind me to use profit goals