Swing Trading Psychology: What Makes It Different? // Ep. 37

In This Episode

• How to become the best swing trader possible
• Why most retail traders are swing traders
• The hardest parts of swing trading

What's Different About Swing Trading?

Certain types of people are attracted to swing trading. Learn what types of people are better swing traders and the hardest/easiest parts of trading this timeframe.

Read the Transcript:

Hugh: Hi, Walter. Let's talk a little bit about swing trading psychology. How is it different from other types of trading? What are your tips on becoming the best swing trader possible?

Walter: Well, I would say from the data that I have seen and from asking traders questions and putting through like a questionnaire, most traders are what you would term swing traders or end of the trend traders. About eighty-five percent of traders like to find the end of the trend or like the end of a swing move. They kind of like to catch a reversal. For most traders, it's unnatural to try and buy at a high or sell at a low and assume that you're in a trend.

So that’s the number one if you're a swing trader. It's probably going to be quite easy from a mental point of view to try and hook into these. The bad news is, there's a real temptation because a lot of times let's say, you're a swing trader and you get in on a pullback. 

It's actually a trend; it's a strong trend and it keeps going. It is going to keep trending and so you find your reversal entry and you get in it. The problem is you know that trend, that reversal is only going to go so far and then it's going to continue on the trend. What that means is you have a very small window to take profit if the market is trending.

Oftentimes, a lot of swing traders or reversal traders you know, end-of-trend traders, their radar really perks up when they see a strong trend because they think, “Oh, it's going too far.” I’ll tell you right now, I raised my hand as you know back in 2001. I think it was when the Euro went over a Dollar.

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Walter: I remember saying to myself, “Well that ain't gonna last very long” and here we are twenty years later, it is still over a Dollar. When I first started trading, it was when the Euro first came out. It was always below a Dollar; it was like eighty-seven cents, eighty-nine cents or ninety-two cents like it was always down there you know. So we always thought it was just trash you know. The Euro's trash man you know it was no good.

I remember thinking when it got above I go, “Well, totally time to sell” that was like a three-year bull trend you know. It's crazy. So it's natural, is one; there's a temptation to take quick profits which I think is bad. I think you're probably going to want to use some sort of element of a trailing exit and also some sort of way of determining whether or not the market is trending or not. Make sure you just stay away from the trailing market. 

If you see a box consolidation or a channel you know there's lots of different trend lines or whatever, if you have a line in the San Diego game you know it shouldn't go beyond this, like use that sort of thing. So like trendline support and resistance, anything that you can really sort of define the market as range bound or at least not trending, you're better off than looking at those wild charts. Where the market looks like it's gone too far and you just think it's going to come back because it's gone too far.

I would stay away from those. I would try to have a really high reward to risk ratio because like I said it's really tempting to take profit when you catch these reversals and it doesn't really go that far and then you start thinking, “Uh-oh! I better take profit or it's going to go against me” sort of thing you know.

Hugh: Yeah.

Walter: So you're better off just moving to break even and then slapping a trailing exit on it or something like that. Do you know what I mean? And then saying, “Okay, I either hit break even or I really got one here” sort of thing. That's what I would do but I mean, everyone's got to decide for themselves. Test and figure it out if it's you know, if it's profitable.

Hugh: Sure. I think definitely patience and lack of patience is definitely the hardest thing about swing trading. Just going through the testing and figuring out, “Okay, how am I going to exit? Does that exit work?” I think it's the toughest part. Otherwise you know it's pretty easy from the standpoint that you can just take one or two trades a week. You don't have to look at the charts every hour or whatever. I would agree with you.

Walter: For sure. I mean, it's fun. That is why a lot of traders get into it because they think, “Well, this is you know, this is obvious. It's going to turn around here”. I think for non-traders or new traders, that's what they think trading is like you have to know where it's going to go. Do you know what I mean? Like trading is predicting the future when really it doesn't.

Hugh: That's not really or anything, right? 

Walter: Yeah, exactly.

Hugh: Okay, cool. Thanks, Walter.

Walter: Thanks, see you.

Hugh: All the information in this podcast is for educational and informational purposes only and is not trading or investment advice.

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