Short-Term Swing Trading: How To Balance Risk And Reward?

Trading is the art of predicting and utilizing favourable price movements in the stock to make profits. Trading is always associated with quick profits and high risk. But, people fail to understand how profits can be made by minimizing or balancing the risk.

There are different types of trading that can help you make profits based on your study, patience level, and risk percentage. But, when we think about balancing the profits and risk perfectly, the best type of trading is swing trading.

Swing trading falls in between intraday and long-term investment. The trade can last up to a week or up to a month too. All this is based on your study and the target. Also, in swing trading traders usually aim for big targets compared to intraday. This is because they have plenty of time in the trade and good price movements can be captured in the time frame between weeks to months.

Many traders have made rewarding profits with the help of advanced technical analysis in swing trading. They made themselves competent enough to make major profits with the help of minor capital.

Short-Term Swing Trading

In general, swing traders wait for about a week or a month to book profits by achieving their trade targets. But, there are aggressive traders who have mastered the art of short-term swing trading. For making short-term profits via swing trading strategies, a trader needs advanced technical analysis knowledge.

The trader should possess skills in identifying previous price patterns of certain stocks. Further, they should know the exact point to take the position.

In swing trading, there is usually a long wait time. Sometimes traders know how the price is going to react, but they are unaware of the time it is going to react. Whereas, the one who wants to make short-term profits requires exceptional price action skills. These skills enable the trader to predict the point from where the price might react and help them in risking their accordingly.

Balance of Risk and Rewards

Risk and rewards can only be managed well if traders have mastered the trading psychology. The trader should know how to plan their trades and accept profits and losses without letting emotions take over. But, apart from trading, there are various other factors that need to be considered.

One should always go with liquid stocks. The price action strategies might provoke you to trade in stocks that are not good enough and have no liquidity. These stocks might give opportunities, but they do not promise a good reward ratio compared to stable companies. One should always go for stocks that have high liquidity.

In terms of risking capital, one should only put 5-10% of their total trading capital in one trade. One of the biggest mistakes a trader can commit in swing trading is risking all they have in one trade. Keeping a good balance of capital in different trades from stocks of different sectors helps in maintaining a diverse portfolio. Even in this scenario, if one or two trades fail out of five, the other 3 make up the losses of these trades and add additional profits too.

Often people think that profitable traders are the ones whose trade never goes wrong. But this reality is that profitable traders are the ones who know how to manage risk in their trade. There is no trader with 100% accuracy. But, the profitable traders are the ones who have almost 70-80% accuracy and know how to minimize losses in every trade.

In swing trading, a trader has plenty of time to plan and execute their trade. They should consider all the risk factors before taking positions in the market. Further, a trader should always know how much capital they are willing to risk. In the initial stage, one should not risk more than 1% of their capital.

Sticking to certain rules helps swing traders believe that losses are inevitable in certain situations. But, it also gives them the confidence to make more profits in the next trades.

The views and opinions stated in the content belong to Arun Singh Tanwar, Founder and CEO, Get Together Finance (GTF).

Disclaimer

The recommendations made above are by market analysts and are not advised by either the author, nor Greynium Information Technologies. The author, nor the brokerage firm nor Greynium would be liable for any losses caused as a result of decisions based on this write-up. Goodreturns.in advises users to consult with certified experts before making any investment decision.