Trading Rules for Swing Trading

These trading rules below should help your swing trading efforts yield more profits.  By following some trading rules, your trading approach will be far superior to any trading method without rules.  The objective for all of us is to maximize gains while minimizing losses along the way.  Successful trading requires discipline, and these guidelines will help you in your quest for profitability.

1. Emotional control is at the heart of good trading.

Controlling yourself allows the ability to think clearly at each moment, resulting in success as a trader.

2. Cut losses with the most strict discipline.

We must preserve capital at all times.  Losing is part of trading, but opportunity cost is to be considered when hoping for a losing position to reverse course.  If your trade reverses and violates support, get out and be willing to re-enter.  This will save you from big losses and you can always re-enter if the stock crosses the entry price again.

3. Make good decisions and winning will take care of itself.

Focus on how you play the game and not on the scoreboard.  Trade with discipline and follow your game plan.

4. When you lose, don’t lose the lesson!

Forget the names but remember the events.  Those who don’t remember the past are doomed to repeat it.  Make mistakes with composure and character, without blaming others, and don’t dwell on mistakes.

5. When in doubt, get out.

Scrutinize your positions at all times, each day, and you will not be left holding a stock without reason.  Be willing to change direction at any time, because your flexibility as an individual investor is a big advantage which should be embraced!

6. Keep your risk/reward profile in check.

Profits can exceed losses even if the number of losing trades is greater than the number of winning trades.  Always properly manage money, size positions accordingly, obey stops, and protect profits.  This will keep you in the game!

7. Avoid scheduled news.

We are unable to foresee breaking news, but scheduled news we can step aside from.  Scheduled news includes interest rate announcements, corporate earnings announcements, and various daily economic releases.  Remember to trade only when you’ve got the best of conditions.

8. Consider your account size for appropriate trading.

An account that is too small magnifies the effects of each trade, which keeps us from thinking rationally.  Trade with the attitude that the next trade will simply be 1 of the next 1000 trades you will make.

9. Get a charting program that allows you to build watch lists, sort stocks, and draw trendlines.

This is essential to learning.  Price action and volume are vitally important in finding good chart patterns.

10. Scale out of winning positions as they work for you.

This achieves two goals:  taking some off the table and keeping you in the game.  If your trade reverses, you took some profit at good spots.  If the move continues, you are still on board for the ride.

11. Don’t dig yourself into a hole early in the day or in your career.

Be willing to observe the market and make an informed decision.  Missed money is better than lost money, so wait patiently for the best opportunities to arrive.

12. Trade with a blend of anticipation and confirmation.

Balancing these two will mean that you adopt a system of “if this happens, I will do that.”  Wait for your pitch!

13. Beware of your trading process following a winning streak.

After a win streak, be extra disciplined!  Many will make money in the market, but discipline is required to KEEP it.  Stay on your guard at all times!

14. Evaluate your results at least monthly.

Monitor your P&L, your win/loss ratio, and the relationship between your biggest wins and worst losses.  Reviewing these results helps you continually improve your understanding of the markets and yourself.

15. Finally (perhaps most important), always be patient.

Long-term patience will keep your confidence and optimism high, and short-term patience will help you wait for the best trades.  Success doesn’t come easy, and rarely are fortunes made overnight.  Be willing to pay your dues and put in the work in order to achieve your goals.

Please also see our stock trading strategy page or our FAQ page.

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