I’m not going to sugarcoat it for you… this is a tough market for swing trading.
It seems like traders are reacting to every headline pertaining to trade talks that holding overnight positions has gotten riskier. It’s even more challenging if you primarily trade stocks on the long side.
That said, nearly 32% of the S&P 500 is in bear market territory (+20% off 52-week highs)…
Now, here’s what I’ve been telling clients in this volatile market:
- Be careful taking on new long positions
- Manage current positions and keep risk management a focus
- Don’t try catching bottoms, it’s better to wait for confirmation than to rush in
Of course, if you’re uncomfortable with the volatility or continue to struggle making money in this market condition then get out or trade smaller.
It’s that simple. If this isn’t your market the prudent thing to do would be to step to the sidelines. Spend time away from trading to work on developing the skill sets needed to become a profitable trader.
(If this isn’t your market then it’s okay to sit on the sidelines, use your time to strengthen your trading knowledge in my members’ section, click here to learn more.)
To further help you along the way, I’ve put together a list of what I believe are the best habits needed to be a successful trader. These are habits that have helped me go on to becoming a multimillionaire trader and ones that will help you along your journey too…
Every trader has bad habits that they would like to change. Some habits are buried deep within and need to be brought to the surface so they can be identified and changed.
Now, one way to identify and change habits that are affecting your trading is to look at the habits that successful traders have.
However, it’s not as simple as just reading it… when you’re actually read about these habits, write down your thoughts and try to figure out if you’re doing the same thing they’re doing… or if you have holes in your game.
Have a plan for every trade.
This means that you write down your entry, exit and stop loss strategy for every trade. Now, if you don’t know how to develop a trading plan, check out the post I wrote on treating your trading like a business.
Basically, you want to go into a trade planning for different scenarios.
I can’t tell you how many times I’ve had traders come to me after they’ve lost money… one common problem they had was the fact they didn’t trade with plans.
However, it’s not just about developing a trading plan… execution is key to.
For example, if you want to buy a stock at a certain price… you have to execute and stick to your plan. That means you have to pull the trigger… and if the stock gets to your target, you would take your profits… not holding on the stock because you think it could go higher.
Now, if the stock gets to your stop loss price… that means you’ll have to sell your shares… not buy more and try to get a better dollar cost average because that’s one of the quickest ways to damage your account.
I like to plan my trades in advance… and I alert Petra Picks Clients about them.
Once the plan is developed… it’s all about executing and sticking to the plan. For example, AMETEK Inc. (AME) is on the watchlist. If the stock is between $86.56 to $86.81… I’ll look to buy. If it falls to $85.53, I’m out.
My targets are at $87.65 and $88.46… but I’ll also be monitoring the technicals on the daily chart too.
Now, another habit successful traders have is basing their trade ideas on what they see… not predictions.
Base Your Trading Plan on What You See
What you see on a chart is a fact. What you predict is fiction.
No one has a crystal ball that accurately predicts price action, but we all have charts that give us information that contains the facts about price action.
One way to test yourself using predictions is to pay attention to your choice of words. Words like “I think”, “I feel” are most likely predictions.
You see, the market doesn’t care about your predictions… however, they do care about price action, news events, as well as supply and demand.
For example, one of my patterns is the rounded bottom breakout (RBB), you’ve probably heard of it before… well, it’s based on price action and technical analysis. Here’s a look at an RBB trade that I actually traded.
Well, the market respected this price action, and I traded what I saw…
Not only that, we got a bit lucky on this trade after there was acquisition news surrounding Anadarko Petroleum (APC)… sending the stock higher by 30%+.
Now, it’s not only about having a plan, executing, and trading what you see… it’s also about knowing your strengths.
Know who you are as a trader and be your own trader
Do you have the personality for swing, day or long term trading?
For example, if staring at your screens and watching stocks all day isn’t your thing… then you would probably be a swing or long-term trader.
Now, I like to swing trade because I know it takes time for my patterns to develop. Not only that, I’m comfortable holding my positions for a couple of days or weeks because I know my exits and targets.
You see, just because someone is having success day trading… it doesn’t mean you should do it too. That said, be your own trader and do what’s comfortable for you.
Stick with the type of trading that fits with your lifestyle and personality. Be your own trader and don’t be a follower.
You need to be confident in the trades you execute and this means understanding the trade and believing in the trade. Just because someone else takes a trade doesn’t mean it is right for you.
Moreover, know your strengths and focus on the best setups that work for you. For starters, you can study stock charts and identify high probability setups… and start with one or two trade setups, master them and then add more setups.
For example, my strengths are in using charts and technical indicators to time my entries. Now, if you want to learn more about what indicators I use, click here to find out what they are.
Have a “Trading Business Plan”
Every successful business owner has a business plan. Since trading is a business, traders should have a business plan. There is a lot of information out there on designing business plans. A suggestion is to keep it short and simple. A one ortwo-page business plan is sufficient for most traders.
Now, we went over how to create a trading business plan, and you can read what details you should include here.
Journal and Review Your Trades
Now, a lot of traders think when they exit their trades (take profits or a small loss), they’re done for the day… well, it doesn’t work like that.
You see, successful traders journal their trades.
If you don’t write down your trades, you can’t develop and refine your skillset. When you write down your trades and review them, you have an idea of what’s been working for you.
Now, there are a few ways to make a trading journal.
For example, you can use a spreadsheet or log to document your trades. Additionally, you may want to mark up a stock chart for each trade and paste it into something like Microsoft Word.
On the stock chart, you indicate your entry, target and stop. You can also mark resistance and support areas along with trend lines and other notations to help manage the trade.
For example, you can annotate a chart and put the reasoning you got in.
Many stock charting programs have an annotation feature that helps you mark up charts. Save these marked up charts in a file or print them off for review.
Not only that, you can include things like how you were feeling that day, whether you got enough sleep… or anything else that’s on your mind.
Moreover, you should write a summary of your trading performance. For example, if you’re a swing trader, you can do a weekly summary… but make sure to journal any trades you have the day you enter or exit.
In the summary, you’d want to include things like overall profit and loss (PnL), what you did right, what you did wrong… which patterns worked for you… was your execution flawed… were your ideas spot on, or did they miss the mark.
Now, it’s not just about keeping a journal…
You should go back and review it.
When you review your trading journal consistently, you can figure out what’s working for you and what’s not. That said, you’ll be able to maximize your money-makers, and minimize losses.
Moving on, great traders know how to take their losses and learn from them.
Accept your losses
No one is right all of the time and trade setups do not always go the way you want them to… that’s why we place stops with every trade entry.
A stop-loss is what you plan in advance and are willing to risk for the reward you specified in the trade plan. Traders that don’t want to accept losses or set stops frequently let their losing trades run… and end up losing a large chunk of their account.
They may even average down as price is falling only to watch the loss grow. Eventually, these traders are so devastated financially and emotionally that many quit trading.
That said, this ties into having a plan and sticking to it. Don’t be stubborn with your trades and accept when you’re wrong… because the last thing you want to do is be a bag holder.
Last, but not least… understand when you shouldn’t trade.
Know when to trade and have the discipline not to trade
Trade only when the market gives you a clear direction.
For example, we’ve been experiencing some volatility recently… and traders have been having a hard time finding a clear direction… and I don’t blame them. Check out the daily chart on the SPDR S&P 500 ETF (SPY).
If you are confused, have trouble finding trades that meet your rules or do not know what to do, these are signs that the market may be in a state of flux and not conducive to your style of trading.
There are times to stay in cash or just manage the positions you have working. It is okay not to trade every day. In fact, forcing trades in an undesirable market often leads to losses. Be patient and wait for your setups.
For example, when the market was selling off recently… I didn’t look to enter any new trades because the market could fall further and we don’t really have a clear direction… not only that, some of the stocks I love to trade are market-related.
That said, if you didn’t write down some your thoughts as you were reading this… make sure you give it a once over and try to figure out your habits.
Now, if you want more tips to become a successful trader, make sure to check out my 10 Must-Have Trading Tips – the first video goes over the 10 things I wish someone told me before I started trading.