There are far more than 15 reasons — and I’ll even add them to the list as time goes by — but these are the main 15 reasons you suck at swing trading stocks.
1. You Are Way, WAY Under Capitalized.
If you are living paycheck to paycheck with $500 extra bucks in your pocket, do not eye the stock market as your ticket to financial freedom. The chances of you striking it rich in the stock market with that measly $500 are so low that I would actually bet my $500 that you’ll lose your $500 within the first month of live trading.
This is not me being mean. This is me being realistic. That $500 will better serve you as a rainy day fund or as a start-up for some side business MUCH MORE SO than it would to get your foot in the door of swing trading the stock market.
If I was trying to sell you something, this is where I would say “yeah, you can do it with just $500. You just need to buy blah blah blah”. Well, I’m not selling anything…. so, I won’t blow smoke up your patootie.
If you are comfortable with your financial situation in life (have several thousand dollars of expendable cash) and wish to expand it FURTHER, then you may consider swing trading as a POSSIBLE source of income.
I can not stress this enough. Being emotionally attached to that $500 deposit (or whatever amount your are clinging to like buzzards to a corpse) WILL make you lose all of it in the game of swing trading stocks.
Note: Investing $500 long term in the stock market is not what I am referring to. People do it all the time. It’s a different style of trading that I don’t engage in currently. I’m a swing trader, not a long term investor.
2. You Are Too Afraid To Lose.
If you are not prepared to lose money AS SOON AS YOU INITIATE A TRADE, you are not prepared to swing trade stocks. It’s as simple as that.
Losing is and will always be part of the game. Accepting loses, learning from them, and moving on makes you a better trader. Focusing on them day in and day out in fear of making the same mistakes is one step on the road to the loser’s circle — where 90% of contestants end up.
There is a reason why you leave emotion at the door when you enter this game — emotion blows up accounts!
3. You Care About the Company.
This is swing trading, not long term investing. Caring one iota about a companies fundamentals and their track record does you no good whatsoever. It helps about as much as knowing the weather conditions in March… of the year 3015 — you won’t be around.
You’re in, you’re out — that IS swing trading. You’re not investing in the company, you’re investing in the chart pattern and it’s probability of going higher (or lower if you are shorting).
Knowing specifics about the company can make you alter your strategy and change your game plan. This leads to failure and losses. A trade that goes against you should be cut off , accepted, and learned from. Knowing about the companies “plans” for the future can interfere with your mentality and your plan.
Quick Note: There are some traders that would disagree with me on the fundamentals side as it applies to swing trading. They would say that knowing some details about a company won’t hurt your chances of a good trade.
Such individuals believe knowing a stock’s “story” can be a game changer and give you insight as to what’s going to happen in the short term. This may be true to some extent but I have never given it much attention.
Why? Because by the time I’ve figured out the story behind a stock and whether it’s good or bad, I could have scanned through a few dozen different chart patterns and found better set-ups.
4. “Winning” Is Your Only Strategy
You have no thoughts toward profit loss or profit gain. You don’t know how much you’re risking nor how much your potential profit is if the trade goes in your favor; and no, it isn’t infinity nor is it the sky’s the limit!
Picking the direction of any stock is indeed a 50/50 shot, but here’s the kicker… you can be right with your pick each month, week, day, hour, and minute and STILL lose money.
How is this possible? Because STOCKS GO UP and STOCKS COME DOWN in every single time frame on every single chart. That is what they do and will always do.
If you can find me a stock that just goes up and up and up and up without ever pulling back, please send that ticker my way.
Picking a direction of a specific stock and seeing it go in that direction is great, but that means absolute doo-doo if…
- You’re Not In The Stock. (Armchair quarterbacks are worthless in this game)
- You Get In The Stock, But You Don’t Take Your Winnings Off The Table When the Time Comes.
Having an overall strategy, as well as an entry and exit plan for every stock you invest in, is an absolute must. Otherwise, you can simply walk to the bathroom and flush the money down the bowl right now.
Picking the right direction and losing because you didn’t sell and take profits at the right time is no different than picking the wrong direction — YOU STILL LOSE.
5. Your Risking Too Much For Too Little
The general consensus is that you should never risk more than 1 to 2% of your bankroll on any one trade when swing trading. This means that if you trade with a 20k account, your risk on any one trade should never be more than $200 to $400 dollars, roughly.
The idea is that if a trade goes against you (which they will), you only lose a very small portion of your money and will be able to bounce back fast; a portion so small that it can be gotten back relatively easily.
If you’re risking 10%, 15%, or 20% on trades… it’s only going to take a few trades to blow up your account and send you to the loser’s circle where your cries will be lost among the masses.
That was part one, risk management.
Part 2 is a just as important. Risk VS Reward.
If you’re risking $200 to only win $50 with each trade, well, that’s a recipe for failure. You could actually win more trades than you lose and be at a LOSS rather than a gain.
This is because your letting your losers go to $200 and your winners only to $50 before you cash out. 1 loser is going to need 4 winners just to break EVEN. So even with an 70% win rate (which is EXCEPTIONAL), you’re still losing!
Your looking for chart set-ups that will give you 1:2 odds at an absolute minimum. Some traders will only trade set-ups that offer 1:3, others still 1:4.
With this method of trading, you’ll risk $100 but your reward (if you are correct) will be $200+.
With such a strategy, you could literally have a fifty-fifty win/lose ratio and STILL be successful! That is the power of proper risk / reward assessment!
Quick Tip: Don’t do what I did when I first started swing trading, which was sticking with a preset amount of shares regardless of risk/reward analysis… 100 shares of this, 1000 of that, 500 of this, 250 of that, and so on. Always round numbers.
Tweak your share amounts to whatever you wish so that they fall in line with your risk/reward set-ups. There’s nothing wrong with buying 333 shares or 545 shares. They don’t have to be round numbers — they just have to fall in line with your risk/reward.
6. You Aren’t Letting Your Winners Run
Sometimes, it’s a good idea to let the winners run when they show strength. If your stock hits your profit range and still shows strength, rather than selling all your shares, you take half your position off the table and let the rest ride for whatever the market will give you.
You’ll know when it’s wise to do this and when it isn’t as you grow to understand daily charts and candlestick patterns. The chart will tell you the story and it’s up to you to decide what you want to do. Let it ride or cut and run.
7. You Don’t Learn From Your Mistakes
Every time you have a loser, you put it out of your head and just move on. While I agree with the overall premise of not letting your losers get to you — you are already ahead of the game if you can do that! — you’re missing out on the learning portion of the loss, and that’s critical!
Learning from every loss is what separates good traders from mediocre ones….
- What happened with the stock?
- Why did it turn against you?
- Was it the overall market?
- Did bad news hit?
- Is the sector down?
- Did you miss an indicator?
- Did you ignore the overall trend?
- Did you buy resistance / sell support?
- Did you get caught by an earnings report?
You need to ask yourself what precisely went wrong with this trade and what you can do in your next trade to avoid it, if possible.
Sometimes, even the best chart patterns simply break down for no good reason. So, don’t beat yourself up if you’ve gone through the list but can’t figure out what went wrong. It happens.
8. You Don’t Learn From Your Successes
Just as important as number 7! Learning from your successes is another key step in becoming a successful swing trader. Winning is not enough, you need to know how your winning so you can continue to do so!
- Is the majority of your wins from a certain pattern?
- Are they before or after a confirmation candle?
- Are you making MORE or LESS (on average) by letting half your shares ride?
- Are you more or less comfortable (mentally) with certain patterns? (I mentally prefer oversold patterns over breakouts)
I found that my odds of a win were much higher when I went with breakout patterns rather than oversold ones. The profit gain was not as high (oversold bounce has excellent short term profit potential), but I had more successful trades with breakouts.
I still like oversold patterns quite a bit, but a successful trader will trade the patterns that are the most profitable to him/her and I will now pick a breakout over an oversold every time — if the risk/reward confirms it’s a good idea.
9. You’re Trying to Strike It Rich
This is a biggie. You’re essentially trying to turn this into a get rich quick scheme because you want fast cash.
Pick a few winners, go big with your bets, live the high life. Easy, peasy, lemon squeezy — right? WRONG!
They have a name for this group of people — “the 90% that lose money”.
Swing trading is not a get rich quick scheme. If you treat it as such you will be rewarded the same way every other get rich quick scheme since the beginning of time has ALWAYS rewarded it’s users.
That’s not to say you can’t become very wealthy with swing trading. People have done it and are doing it every day.
However, you have to be realistic with your goals. You’re not going to be doubling your money every month — so get that out of your head right now. And no, you’re not going to double your money each year either.
10. You’re Ignoring The Pulse of the Markets
One of those reasons you might not fully understand until you get a little experience under your belt. The market bows before no man. Trading without thought to the overall market is dangerous!
Your chart set-up may be perfect and (in your mind at least) it appears to be almost impossible for it to break down — it just looks THAT GOOD. Well, along comes Mr. Market and he REALLY has to go to the bathroom!
So, you know what he does? He walks right up to you and pees right in your cornflakes. I mean he drenches it. Cornflakes RUINED!
This is a really really big one and it knocks swing traders into the dirt all the time. Because no matter how perfect your chart pattern may look, the market doesn’t care and will kill that pattern DEAD with the blink of an eye.
You don’t have to understand the markets, but you sure as hell have to be aware of them and what they are doing if you want to succeed.
- Bull market vs bear market.
- Volatility based on economic news, world crises, tweets from big names in the stock world (yeah this happens!), flippant comments from government officials, etc.
- Market correction or possible trend change?
- Etc Etc Etc. The list goes on.
It all seems very complicated, and it all very much is. However, swing traders aren’t in it for the long term and can cut through a lot of the crapola that is out there so long as we have a general idea of the market’s direction (trend lines).
11. You Are Overtrading
You’d create a watch list and you’d choose the best stocks to trade from that list; never once considering just NOT trading for the day/week.
To put it simply, choosing the best set-up from a list of poop stocks is the same exact thing as picking a poop stock.
A poop stock is a poop stock is a poop stock. Just because it’s the best of the crap doesn’t mean it isn’t still crap… it’s just the most polished turd in the bunch.
You don’t HAVE TO trade it. I say flush the entire batch and wait for something with more promise.
There is no rush in swing trading. You don’t have to trade every day or every week. Knowing when to sit on your hands and simply wait for the good plays to set up is one of the most overlooked aspects of swing trading.
Sitting on your hands is also one of the advantages we have over long term investors. We don’t sit through the gut wrenching ups and downs of the market. We sit until we know the market is trending in a specific direction, then we resume trading.
12. You Don’t Take Swing Trading Seriously
You make no effort to learn more about swing trading, chart patterns, candle sticks, and technical indicators. It’s a passing phase for the sake of making money, not a legitimate interest.
Rather than learn and grow into this endeavor, you want someone to tell you what stocks to invest in, when to buy, how much to buy, when to sell, if you should sell half, if you should hold through earnings, etc. etc. etc.
You want to be babied by others and have someone to blame if it doesn’t go your way. You’ll even go so far as to contact these individuals about every up more and every down move the stock goes through.
This is the very definition of NOT TAKING SWING TRADING SERIOUSLY.
There’s nothing wrong with seeking guidance from others; or even seeking out a mentor for that matter. Seeking help and guidance is not frowned upon, it’s encouraged! Trying to get others to take responsibility for your trades is not!
13. You Think You’ll Always Be Ready To Sell or Buy
You won’t be. I fell into this trap myself, assuming if there is ever a big move in the stock — up or down — I’ll be ready and able to take full advantage every time. This is not the case unless you are glued to your chair every day from 8:30am to 3:00pm (CST).
Accepting that you won’t always be around to make the trades you want when you want is an important realization in the swing trade game — much more so than beginner swing traders ever contemplate.
I myself assumed I’d be around for the big moves and be able to cash out each time. It just isn’t realistic. I can’t count how many times a stock rallied for a good 10 to 20 minutes, then pulled back the rest of the day back to my entry zone — me being none the wiser.
Stocks do not stop when they reach your profit zone to wait for you. They’ll blow right through your profit zone and go higher still just to come back all the way to your entry and lower.
Having proper email/text alerts with all your active trades (even some watch list picks) is incredibly important. You simply won’t be at your computer/laptop every hour of the trading day. These text/email alerts are CRUCIAL to your survival as a swing trader.
Important Note: Another tactic is getting acquainted with conditional orders which allow you to set specific parameters for every trade and automatically sell or buy if certain prices are hit. You can learn more about that on the conditional orders page.
Side Note: I know this seems like common sense, but it’s a pitfall of many new traders and why they lose out on big winners. It happened to me.
14. You Don’t Have a Mentor
Another important one. However, it’s not nearly as off putting as you might think. You don’t actually need a one-on-one swing trading teacher to coach you day in and day out — that’s damn expensive.
A mentor can be a website, a collection of websites, a blog, an author, a swing trade newsletter, or an actual person you pay to teach you. The idea here is just not to do everything on your own, as training completely on your own can reinforce bad habits (those that a mentor would otherwise notice and correct).
Find a source and continue drawing from it as much information as you can. Keep going back to it to reinforce the lessons again and again and again.
15. You Think You Have a Mentor Via Twitter/Facebook
Random strangers on twitter don’t care about you. Not in the slightest bit. Many of them are in fact low down dirty scum. Yes, I said SCUM.
They post their successful trades only, they never talk about their losers, yet they are always glad to mention the successes of everyone in their chat room. As though their chat room equals instant success and you can find out for $297 a month.
If a stock they pick doesn’t go their way initially, they’ll keep harping about the stock to their followers (the paying and nonpaying ones): “This undervalued stock, XYZ, is about to rocket just like last week’s pick ZYX, don’t miss out!”
Or it’ll be something a little less conspicuous like “XYZ is developing the latest (insert interesting buzz news here)! It’s a low float attracting some big bidders.”
These individuals already own the stock, their paying members may already own the stock, and they’ll have thousands of twitter followers at the ready; all of whom aren’t yet paying members BUT have just heard this latest stock pick, from this swing trade guru who has made so many great calls before!
Do you know what happens now? The twitter trader (and maybe some of his followers) sell into the horde of new buyers and reap their profits. The new buyers keep buying until there are no more of them around and that’s when the stock tumbles. Those arriving last to the party are always the bag holders.
The trader pumping that stock doesn’t mention the drop, because that’s what stocks do. They go up and they go down; and he’s 100% right and can not be argued against. The stock went up as he said it would and he was smart enough to get out on it’s way down because he knows when to take profits. He’ll tell you so if you accuse him of anything.
BOOM, another successful pick by “so & so swing plays” and you can be a member for just $297 per month and make profits just like him!
This is not a mentor.
This is a charlatan waiting for his followers to take the bait and lead him to another pay day which he can then use to show his uncanny swing trading prowess. Rinse and repeat.
What I’m describing may sound exclusively like a penny stock scams, but it is done with small cap stocks all the time too.
It’s not done on as big of a scale as the penny stocks, but it happens every day. A few hundred (or a few thousand) people all with thousands of dollars ready and waiting, well, that can create some VERY BIG MOVES on a chart.