7 Common Mistakes Swing Traders Make (And How to Avoid Them) (2024)

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7 Common Mistakes Swing Traders Make (And How to Avoid Them)? ›

Additionally, there are golden rules in the swing trading game. There is a 2% rule that says one should never put more than 2% of account equity at risk. On the other hand, there is a 1% rule that says the loss on a single trade should not exceed more than 1% of your total capital.

Additionally, there are golden rules in the swing trading game. There is a 2% rule that says one should never put more than 2% of account equity at risk. On the other hand, there is a 1% rule that says the loss on a single trade should not exceed more than 1% of your total capital.

Studies show that the number one mistake that losing traders make is not getting the balance right between risk and reward. Many let a losing trade continue in the hope that the market will reverse and turn that loss into a profit.

One of the most popular ways to swing trade is by following trends. This means buying stocks that are going up and selling them when you've made a decent profit or when they start going down. To spot an upward trend you can use tools like moving averages, Relative Strength Index.

The 1% rule is a key risk management strategy for swing traders, where a trader aims to limit each loss to 1% of their portfolio's value. traders have enough capital to keep trading and avoid significant losses that could wipe out their account.

In short, the 3-day rule dictates that following a substantial drop in a stock's share price — typically high single digits or more in terms of percent change — investors should wait 3 days to buy.

Factors such as market competitiveness, the zero-sum nature of short-term trading, and the presence of experienced players contribute to the challenges faced by traders. Research suggests that approximately 70% to 90% of traders lose money.

Why do 80% of traders lose money? ›

One of the primary reasons traders lose money is the absence of a clear trading strategy. According to research by Bloomberg, over 80% of day traders quit within the first two years, often due to insufficient strategies. One of the primary reasons traders lose money is the absence of a clear trading strategy.

Getting distracted by a stock's fundamentals

Swing traders make decisions based on the price at any moment. The price is what pays you the profits. Don't make reactionary trades just because of an event relating to the stock's fundamentals. A stock's fundamentals are only a distraction to the swing trading strategy.

The best trade in history is often considered to be George Soros's shorting of the British Pound in the early 1990s, making over $1 billion. This trade, along with others by notable investors, involved highly leveraged currency exploitation.

Trend following strategy

In swing trading, we try to benefit from the The ups and downs that occur during a trend. It is therefore a great advantage to recognize such overarching trends! The Trend following is a particularly simple and obvious swing trading strategy, that tries to do just that.

One of the simplest and most widely known fundamental strategies is value investing. This strategy involves identifying undervalued assets based on their intrinsic value and holding onto them until the market recognizes their true worth.

The first key to successful swing trading is picking the right stocks, which are often volatile and liquid. Swing trading is contingent on market conditions, though there are different trades for every market type.

What Is the Short-Swing Profit Rule? The short-swing profit rule is a Securities and Exchange Commission (SEC) regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period.

This will depend on your specific account – but a good rule of thumb is to put no more than 1-2% of your total capital into any given position. At first, you may only swing trade a few stocks at a time.

To give yourself more wiggle room, I suggest starting with at least $600 for swing trading forex. Ideally, start with $2,000 or more. If you start with $600 you'll have to grow the account slowly. If you are a good trader, you may be able to average several dollars per week.