Swing Trading? Here Are 5 Actionable Ways To Minimize Risk

There is a lot of misleading information detailing how to swing trade, but this article will focus on how to build the big picture—i.e., what to do beyond buying and selling.

Swing trading is sometimes linked to gambling, and there is a fundamental problem with such a comparison.

Whether its due to Hollywood or urban legends, most people believe gambling is about getting lucky and rising to the riches overnight. The truth is that successful gamblers, just like successful traders, rise to the top because of skills, not luck.

Hence, as a swing trader, you need to go past the details of trading securities and adopt a skill-based strategy to minimize the risk. Here are five tips on which you can start acting right now.

1. Put Your Mind To It

Working with the right mindset is essential for being successful with trading and minimizing the gambling part of it.

“Swinging" stocks can be nerve-racking especially when you have to make snap decisions.

On the upside, unlike with day trading, you have more time to calm your mind and make sound decisions based more on reason and less on a rush of adrenaline.

Ending up on either side of the fence—winning or losing—can play some awful tricks on your risk perception, so consider some healthy coping strategies to keep your mind sharp and focused.

2. Place Some Limits

As important as it is to keep your mind in check to minimize your swing trading risk, you need to exercise proper financial hygiene too.

You can find many different formulas (like the 1 percent rule) suggesting how much money you should put in a single trade or invest overall, but these are only estimates.

While you are looking into minimizing losses, keep in mind that you are trading with real money, and determine upfront how much of it you can part within a worst-case scenario. Placing limits should serve as a guideline of how much you can afford to trade with.

3. Read Those Charts

More often than not, swing traders count mostly on technical analysis with fundamental analysis being a favorite for long-term traders a.k.a. investors.

With a technical analysis, you need to pay attention to lots of variables and what's important is to know what to make of all the numbers you see on these charts.

"Big data" is all the rage now in the business world, but where many companies struggle is making good use of all the information they acquire which can also be a problem for traders.

If there's one thing you do to minimize your risk when swing trading, it should be to learn how to read the charts like the back of your hand.

4. Have A Backup Plan

Ben Franklin wisely observed that “by failing to prepare, you are preparing to fail.”

Franklin’s philosophy applies with full force to prepare a backup plan in case your trading venture goes south.

These days there are a ton of tools that help traders to make smart decisions and not lose the shirt on their backs, but unwelcome surprises still happen.

If you are swing trading as a side hustle and especially if you are planning on making a career out of it, you should consider at least one, two additional sources of income to fall back on during dark times. In other words, don't put all your eggs in one investment basket, though some disagree with that.

5. Care For Yourself

Something that rarely makes it in the investing tips resources is the importance of taking care of yourself.

To some, it might even sound superficial, but keeping your physical, mental, and spiritual health in check is key in performing well at whatever you do.

Trading can be a very stressful and demanding venture, and we’ve all heard the Wall Street stories about young people ending up with strokes or worse, or mental exhaustion so bad that they quit their jobs for good.

Bottom line, one of the surest ways to minimize risk for both your investments and yourself is to invest in your wellbeing. The rest will follow.