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Swing Trading Risks?

 

 

Like most speculative endeavors there is risk associated with swing trading. Though risk cannot be completed eliminated it can be managed.

The first and most basic risk in swing trading is the risk of abandoning the charts for an emotional, momentum based reason. According to Pring “All things being equal, trading success is inversely related to emotional stimulation.”. The successful swing trader sticks to the numbers and does not necessarily follow the crowd as it is exactly the behavior of the crowd that the swing trader attempts to predict and press to their advantage. While swing trading may have periods of frenetic activity, there may also be periods of relative calm and a swing trader must be willing to let the data determine when to wait and when to immediately execute trades. More specifically, swing traders manage risk in five ways:


1. Assuming risk – A trader assumes risk by entering positions or by not entering a position. The second scenario assumes the risk of “lost opportunity”

2. Avoiding risk – A trader avoids risk by not entering the market at inopportune times

3. Transferring risk – A trader transfers the risks to others when he exits a trade

4. Reducing risk – A trader reduces the size of his position or uses stop-loss orders to reduce risk

5. Distributing risk – A trader distributes risk by trading a number of individual instruments vs. just one

 

 

 

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