I’ve made yet another list of trading rules you’ll find helpful… And this one includes some of the best tips for beginner swing traders.
This is a list of rules I wish someone would have told me about 28 years ago…
Most people who began trading in the early 90s had to learn by trial and error.
Swing trading was relatively new back then and day trading had just taken off a few years prior… So it was a brand-new world that no one knew well yet.
Now, there were some swing trading for beginners books around. But they weren’t useful in practicality. There were also advertisements for shops all over the place that claimed they could teach people to day trade.
But the problem with the business model was the owners themselves didn’t know much about trading.
And as a result, they couldn’t teach the students how to trade.
It was one loser watching another loser, and no one made money.
So it shouldn’t be any surprise that these shops quickly went out of business. But let’s get back on topic and discuss some real tips for beginner swing traders.
No. 1 Tip for Beginner Swing Traders: Always Trade in the Direction of the Trend
The first tip for beginner swing traders is to always go in the direction of the major trend.
I know you’ve heard me say this over and over again, but let me give you an example…
Pull up your charts and go sit across the room to see if you can tell which direction the market’s moving.
You only want to take trades in the direction of that trend.
This is an old rule provided by Ed Seykota in his book called “Market Wizards”.
There are other ways to determine which way the markets are trending… You could use a simple 50-day moving average to see what side the trend is on. And that’s usually the side you want to be on.
That means you shouldn’t trade against the main trend.
Even when trades go against you, they eventually tend to gravitate toward the main trend. So going in that direction from the start can save a bad trade from being a loser… and it also increases the odds of trades going your way.
If you don’t believe me, take a look at a stock that’s heading down sharply and wait till a positive story comes out.
The stock will rally for a few days, act like it’s moving up, and then fall once again in the direction of the main trend.
This doesn’t happen every time, but it happens often enough where it’s far from random.
If it was random, there would be very few trends. And if you look at most markets, there’s typically a long-term bias or direction that the market tends to favor.
That’s the side you want to be on at all times.
No. 2 Tip for Beginner Swing Traders: Don’t Trade Dead Markets
It’s no secret that swing and day traders make their money when markets are volatile.
That’s because trading without volatility is like trying to drive a sports car in bumper-to-bumper traffic… It doesn’t go anywhere.
Good trade setups need volatility.
Therefore, one of the best tips for beginner swing traders is to avoid taking positions during holiday seasons, before earnings announcements, the lunch session and all other times when the market isn’t moving much.
However, there is one exception to this rule…
Some swing trading methods rely on short-term support and resistance levels.
These setups specifically occur when markets are dead.
The idea is to wait until the markets are completely dead and develop a high-low pattern. Then you’d scalp or short-term trade for a few ticks back and forth.
This is the only exception to this rule.
To determine if markets are dead or not, simply look at the volume to see if the average is similar to what it was for the past five trading sessions.
Don’t forget to check your schedule for news and reports as this is the No. 1 source of short-term volatility for swing and day traders.
All of the Roger’s Radar videos I post on WealthPress.com each morning provide daily schedules of news that will be released in the upcoming hours, days and weeks. So make sure you check those out!
While we are on this topic, make sure the market or stock you want to trade has a reasonable spread between bid and offer.
This will play a vital role, especially if you’re jumping in and out of the market several times per week.
But no tips for beginner swing traders guide would be complete if I didn’t warn you that many markets and stocks have wide spreads that should be avoided like the plague.
No. 3 Tip for Beginner Swing Traders: Trade Both Sides of the Market
Many swing trading for beginners books recommend traders to only trade the long side until they’re comfortable with both sides of the market.
But unfortunately, you’ll never feel comfortable trading the short side until you start doing it.
It doesn’t work any other way.
You have to trade the short side as often as the long side.
There were as many opportunities when I was starting out where the market would turn on a dime and reverse direction.
I would liquidate my long position, but would never initiate the short and would lose out on valuable profit opportunities.
Remember, markets drop three times faster than they rise. As the old saying goes, stocks take the stairs up and the elevator down…
That’s because fear is a stronger emotion than greed. Therefore, you will probably lose 50% of your trade opportunities just by avoiding the short side.
No. 4 Tip for Beginner Swing Traders: Pay Attention to Correlation
When I began trading, I was following many stocks that were part of the same industry group, mainly tech stocks.
No one ever told me these stocks have a correlation to the market of about 70%, and about 80% to each other.
So if you were to trade chip-makers like Applied Materials Inc. (Nasdaq: AMAT) and KLA Corp. (Nasdaq: KLAC), you’d be trading virtually twice your position size because these stocks are so highly correlated.
Keep in mind, trading highly correlated stocks is the same thing as doubling your position size…
So just don’t do it!
Make sure the stocks you’re trading don’t have a high degree of correlation to each other for a more well-balanced portfolio.
I hope this helps!
If you would like more tips for beginner swing traders, please check out these articles: 2 Swing Trading Rules to Follow for Bigger Gains and The Best Short-Term Trading Strategy for Beginners.
All the best,
Senior Strategist, WealthPress