How to Swing Trade for a Living
Unlike day trading which is very difficult to combine with normal 9-to-5 jobs due to the need to monitor the market during the day for trade setups and manage ongoing trades, swing trading can be easily combined with your usual job.
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However, if you pretty much hate that 9-to-5 rat race and you just want to trade for a living — and swing trading is your preferred trading style — there are certain things you must know and do. Here’re the main ones.
There must be Enough Money
It is obvious that you need more capital for swing trading than you need for day trading. Normally, the size of stop loss when you swing trade is far bigger than when you day trade. So, to risk an acceptable percentage of your capital per trade, you must have larger capital or you trade minute lot sizes which may not translate to sizeable profits to live on. Additionally, because you leave positions overnight in swing trading, it is very risky to use much leverage.
To swing-trade for a living requires that you have enough capital — which can make reasonable profits without risking too much — and enough savings you can live on before you start seeing the trading profits. How much money you need in each case depends on your monthly expenses which in turn depend on your responsibilities — single without kids or the only breadwinner of the family.
Assuming you’re single without kids, you probably spend about $3000 to $4000 each month. If we assume an average monthly profit of 3 to 5 percent, you will need to have $100,000 as the trading capital. Considering that you need some money to live on before you start making consistent monthly profits and unforeseen life and market circumstances, you may need to have three-times that trading capital before you even consider quitting your day job to swing-trade for a living.
In another scenario, if you’re the sole breadwinner of a family, your monthly expenses may be three-or-more-times that of a single person. This expectedly will affect the amount you need as your initial trading capital as well as the savings your family needs to live on before consistent profits start coming. So, you may need to have over a million dollars before you think of making that switch.
You need a winning system
After all the planning, you won’t succeed if you don’t have a way of winning in the market. To consistently make profits from the market, you need a winning system. There is no way around this. Your system must be able to yield a positive balance on a consistent basis. Whether the system wins more trades or not is irrelevant. What matters, is the bottom line profits that you take out of the market.
You must study the market, do your research and come up with a system that has an edge in the market. You can as well buy one, but, I assure you, you will trade with more confidence if you develop your system by yourself.
Your attitude matters
A winning attitude wins in the market. If you trade the market with little faith and no confidence, failure will only be a matter of time. Tough times are certain to come, how you face them and the lessons you pick from them will determine how you’ll fare.
In the world of trading, what you get out of the market is a reflection of your value system. If you’re too stingy, the market will be stingy to you and if you don’t value your capital, the market will help you blow it.
Diversify but don’t overdo it
It is good to diversify since it is a way of reducing risk. However, just as Warren Buffet rightly said, too much diversification is a sign of poor knowledge about the market. You can have three or four different positions at the same time and comfortably manage them. But going beyond five and six is inviting troubles — you may not be able to manage them well. Furthermore, in whatever you do, be conscious of the margin; using excessive leverage in swing trading is dangerous even with diversification especially in the currency market as most of them correlate somehow.
Time your trades.
In as much as it is advisable to let your profit run, while trading for a living, you also need to consider your need for cash. Bills have to be paid, and you can’t do that with unrealized profits.
Study whatever instrument you’re trading to find the average optimal duration you can hold your trades. Most swing last from a few days to a few weeks.
While it may be possible to swing-trade for a living, you will need to assess your situation to be sure it is really what you can do. Moreover, since swing trading takes less time, you may have to find something else to fill your day — make that another source of income.
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