Stock trading is a great way to build your wealth. There are also many great strategies to buying and selling stocks. Some stock traders are day traders; they primarily buy and sell stock during the day. Another way to work stocks is swing trading. People who engage in swing trading buy or short securities. They then hold them for longer periods of time. If you think swing trading could be right for you there are a few things you should know. (Image Credit: Flickr by Rafael Matsunaga)
Initial Investment
If you’re looking to starting to start swing trading full time you’ll need to examine a few variables. You won’t be able to see how much you’ve earned on a daily or weekly basis as is the case in day trading. As a result, you’ll need to become familiar with the concept of float. Float is a concept well known to traditional business as it means that you may have to wait weeks before you see trade profits.
You’ll also need to prove that you can regularly turn a profit for at least a 6 month period. While taking on the challenge of trading for yourself can carry a certain sense of glamour, it can bring on financial, even emotional, pain if executed improperly.
Trading for a living is not easy or for the ill-prepared. If you’re looking to start swing trading full time, make sure you have savings to fall back on.
Diversification
Mitigate the risk and build wealth through swing trading by diversifying your holdings. You’ll need to mitigate your risks but still need to turn a decent enough profit while also limiting the number of trades you’re managing. One way to accomplish this is to hold the least amount of positions and in doing so minimize the risks. This means the average number of trades to carry at once would be about 3. You’ll then have enough position concentration to make a respectable return on your investment, but still be able to effectively manage each position. Individuals are itching to hold over 8 positions in an attempt to reduce risk may be better suited for long-term investing.
Holding
Many people question how long to hold a swing trade. Many traders want an ultimate calculator or cheat sheet that will reveal when they should enter or exit trades; however, no such holy grail of investing exists. Trading is a complete mental exercise for traders. Risk and profit perception differs from trader to trader. Every individual has their own viewpoint. The simple truth is, you have to be willing to put in the hard work and the time of tracking each and every one of your trades. Your research will help you determine what price action rules are the most applicable to your unique style of trading.
In short, swing trading can certainly build your wealth, but you need to assess if now is the best time for you to get started. If now isn’t the right moment, don’t worry. The market will be there tomorrow.
