Is Making Money From Swing Trading Too Good to Be True?

by Shelley Moore ; Updated July 27, 2017

Making money from swing trading is possible and plenty of people do it. Nevertheless, it's estimated that 80 percent of people who try on-line trading lose money, and 95 percent of people who try swing trading lose money. Swing trading requires a great deal of study and practice, along with strict money management and discipline. Most people aren't cut out for it.

Identification

Swing trading involves identifying stocks in a definitive trend, then making several short-term trades within that trend, entering and exiting to maximize profits. Swing traders work with price moves that last about five days or a bit longer. They buy on a price pullback, then ride the next swing upwards, and sell as close to the top of that wave as possible. Unlike long-term traders, they are not concerned with company fundamentals such as quarterly earnings, only with the stock chart.

Warning

For most people, a longer-term system like trend trading--buying stock in a definitive trend and then holding it for several months or even years--will provide more profit than the very active swing trading. It isn't the techniques that usually trip up short-term traders, but money management difficulties combined with psychological issues.

Significance

People wanting to try swing trading should only do it with money they can afford to lose. Anxious traders make bad decisions, and when people need successful trades to pay the bills, they almost invariably lose money. These types of traders become too heavily invested in wishful thinking, and are unable to take small losses, thus staying in bad trades and losing even more money. They do compulsive trading during time periods when they should sit out, such as when the market is moving sideways or becomes too volatile.

Effects

People who need to be right all the time will fail at swing trading. Swing traders must be able to accept many small losses in addition to their larger successes. They must determine a specific amount of money they will risk on each trade, and cut their losses at that exact point. They cannot become distracted by hope or frustration.

Misconceptions

Making money from swing trading is too good to be true if the person thinks it's a quick and easy way to get rich. Advertisements claim to sell systems that generate $10,000 every morning, after which the trader can go lie on a beach all day. In reality, people need enormous amounts of money and experience to be able to achieve results anywhere near that successful, and they aren't selling their magic system in ads, because there isn't one.

Considerations

Traders who keep searching for the Holy Grail System are in a futile endeavor. Swing trading techniques are straightforward and easily demonstrated, with no secret formulas. Most people can learn swing trading through studying reputable books and Websites from experienced traders, then practicing--"paper trading"--until they are consistently successful, before trying it for real. A swing trader needs excellent skills in money management, risk analysis, patience, and psychological discipline. With those qualities, swing trading is a method which can generate good profit, and is not too good to be true.

About the Author

Shelley Moore is a journalist and award-winning short-story writer. She specializes in writing about personal development, health, careers and personal finance. Moore has been published in "Family Circle" magazine and the "Milwaukee Sentinel" newspaper, along with numerous other national and regional magazines, daily and weekly newspapers and corporate publications. She has a Bachelor of Science in psychology.