How to Successfully Swing Trade for a Living

Last Updated July 23rd 2021

7 Min Read

Not everyone can do day trading. Especially those who hold down a day job or cannot devote the whole day to trading.

Even though it is trading in stocks, swing trading can be considerably different to day trading.

So why do many aspiring traders who get into trading on a part-time basis consider swing trading to both make money and live the trader’s life?

What do you need to be a successful swing trader? Let’s look at 5 requirements for a fulfilling career in swing trading.

It’s all about the money

It all starts with money, right? Without a solid capital, you cannot make more money in the trading universe. So, the starting point is to build a corpus to start your career in swing trading.

The one challenge here is that, unlike the much higher leverage of up to four times that is available in day trading, swing traders can only get up to two times. This means that for a $10,000 deposit, you can buy stocks worth $20,000. This leverage itself is not bad for someone starting off as the build-up to exposure initially should be gradual.

A good starting point, if possible, is to begin with a $10,000 capital. The bigger the corpus, the more stocks you will be able to trade in. This will also help you spread your risks better and stand a higher chance of having more winning deals.

Have a clear risk management plan with a risk to reward ratio. A risk is a reality in trading and even the best-planned trade with the backing of technical charts and fundamentals and a stop loss plan will have a risk element. But that said, you will have to take risks to aim for rewards as you will have to consider the cost of funds and the added burden of commissions. A risk of 1% is considered ideal with a stretch to 2%, if necessary.

You also need to be prepared for funds getting locked up for longer periods, when compared to day trading. It can be a few days to a few weeks waiting for the swing to take effect. Remember that, during this period, the funds are locked in. If you have another source of income, sparing that may not be a problem. But for full-time swing traders in urgent need of funds, the capital deployed will be liquid only when a position is ripe to be exited or a premature sale would have to be done.

Check Out: Is Swing Trading Profitable?

Diversify, effectively

As with investments, trading too is about managing risk and never putting all your eggs in the proverbial one basket. The chances of a trade not going your way is real and, as a trader, it is crucial to always manage risks.

In day trading, traders are at work all day long and there are many opportunities to do multiple trades. This gives them the leeway to cover mistakes with more trades and make up for the losses.

But in swing trading, you do not have the luxury of making unlimited trades. Theoretically, you have, but practically it is not a good idea to take too many open positions overnight and for days and even 2-3 weeks.

Manage your timing

We know that day trading is very demanding on a trader’s time and attention and every minute and second can count. But swing trading is no less challenging on managing time and a swing trader needs to take time management seriously.

Unlike day trading, swing trading does not have any set time restrictions to adhere to and this itself is reason enough to be alert and organised. It is important that you outline the timelines of your positions and set limits on the time you hold them.

Typically, it is difficult to exit a position when a stock is on an upward spiral. But without a definite plan and timing your move, the gains only remain on paper. What’s more, it could also get wiped out if you don’t act on time and realise profits.

Even if there is no instance of the price plummeting, there is the possibility of opportunity cost and the cost of funds if there is no movement for a prolonged period. As a trader waiting for the swing to complete, you might also have to face a plateauing of the price. So the timing of an exit and moving on to another stock is critical.

With experience, you will learn how to catch a swing and how to let one go and this is where timing your moves matter. After all, realising profits and either reinvesting them in another swing or withdrawing it for any expenses make more sense than holding on to a position indefinitely. There could be times when a subsequent trade can cover up for the lesser upside made from a dormant purchase.

A flat run of anything over four weeks to six could rob you of the chance to enter more swings and, thereby, making your invested capital work harder.

Be result-oriented

You could have a substantial corpus to work with, the best strategy and plans, and the best stocks lined up in your portfolio. But at the end of the day, what matters is the final result of all the time and effort you spent.

Traders are in the market to make a profit. Everything else is just the optics that really does not amount to much if you are unable to consistently make profits.

A successful swing trader should have a singular goal - to make his investment and his trades result in profit. It is important to analyse why some of your calls did not work out or why some worked. But keeping your final goal to be about running a profitable trading set-up will ensure that you will work backwards to streamline everything else.

Make your attitude matter

Trading is a tough business - economic uncertainties, choppy markets and even the best of stocks getting difficult to read. There will be days on end when your calls could go off and even the best decisions could backfire.

But for these lows, there will definitely be highs as well. What is important is to develop the right mental framework to survive and thrive as a swing trader. Acquiring the required attitude to absorb both the losses and celebrate the profits will be one of your prime assets.

It is important to remain positive through your mistakes and learn from them.

It can be a tightrope act to be bold and be able to trust your instincts to take calculated risks yet be circumspect and restrained to not take unwanted ones.

Can you live off swing trading?

So, it is time to pop the billion-dollar question - can you live off swing trading?

The short answer is yes, but the longer version comes with a few caveats. This includes the obvious recommendation to start with a clear strategy that has been tested to work and to stick to it.

For this, be comfortable with your Risk to Reward (RTR) ratio and base it on your:

Appetite for risk – Evaluate the positions you are willing to take on a stock and its potential swing. Aim too high and both the rewards or the profits and the risks or the losses will higher. Aim too low and they will both be on the lower side. Find your sweet spot and be consistent.

Seeking opportunities – The more stocks you take positions in, the higher will be the diversification and the chances for success and, likewise, the lower the possibilities of risk and losses. But, remember, stretching yourself to track too many stocks may not be easy and you must find a number that is ideal on both diversifying enough and for ease of managing.

So, once you settled down on your strategy and get comfortable trading, getting 5% to 10% returns are possible. Established swing traders are known to make up to 20% and even 30% though the market average could be closer to 10%.