Swing trading mistakes to avoid.

swing trading mistake

Here are the basic swing trading mistakes and why they are important to overcome to become a good trader.

One of the biggest mistakes that most of the swing traders do in their early part of the journey is not realizing the difference between a trade and an investment. Even when they have clarity between the two things, they find it hard to follow it when a trade goes against them. This is a problem that I see is not only faced by amateur traders but also by the most experienced ones.

Why is it hard to accept a stop-loss on a swing trade as compared to an intra-day trade?

There are a few reasons for this:

1) Intra-day trading is about using leverage- to make more money on less funds in less time. Whereas, swing trading is about making money without leverage and comparatively in higher holding period. When we have paid the full consideration for the shares purchased, there is no compulsion to sell it like in an intra-day trade taken on leverage.

2) Most of the traders believe or hope that if they hold something for some more time, it has a good chance to come up again. Most of the good stocks generally do well over time and their price increases. Just because it happens most of the time, you can’t keep examples like Yes Bank, DHFL, Vodafone Idea etc. out of the game. Some big names also bite the dust in the market. Therefore it is called a risky game.

3) Swing traders generally have more time to think than a day trader. In some cases, it makes the trader think like an investor when things goes against their idea.

Why is it important to overcome this mistake?

1) A trader has a goal of making high returns in less time. An investor has a goal of making money with time. Thinking like an investor, as soon as your trade goes wrong, it won’t fulfill your purpose.

2) This will always keep your risk higher than your reward. Converting a trade into an investment has a chance of 100% draw-down. When it goes in your favor, you will book profits in short which will never allow you to have a better reward than your risk.

3) You will always have a poor ROCE, considering you will waste a lots of your time. Most of the times you will face issues of a fund crunch.

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