Swing Trading Rule: Control Your Emotions

This is the most foundational swing trading rule that there is. If you are unable to control your emotions then all other trading rules are null and void. You will break each and every one of them at some time or other if you can't control emotions.

The two most powerful emotions that you will experience when swing trading stocks are fear and greed. They evidence themselves throughout your trading. The reason that we put trading rules into effect is in part to eliminate the influence of fear and greed on our trading.

How do you control your emotions? I wish I had a simple answer to this question. In large part it will be determined by the individual who is trading and how disciplined they are. I know that is sort of vague but it is unfortunately true.

Some have suggested that you can learn to control your emotions by paper trading. I disagree with this statement. I am not saying that paper trading is completely without value but I am saying that success in paper trading does not necessarily translate to success when real money is on the line. You do not have to deal with the emotions of fear and greed when paper trading. Why? Because you do not have any real money on the line. Once your money is in play everything changes. Some people are not able to rest comfortably while they have money invested in trading stocks. If this is you then I would avoid trading stocks and shares and stick to mutual funds and hope for the best.

I have found that they best way to try to minimize the emotions of fear and greed when first starting out is to only trade with a level of money that does not cause you concern. If you are not worried about $2000 then begin trading with that amount. It is much different than trading with $20,000 or even more.

As you begin to gain more comfort with your ability as a stock trader and as you prove to yourself that you are able to follow a proven stock trading system, it is then that you can begin to trade larger and larger amounts from your account. Take it slowly and in stages. Sooner or later you will be able to make trades and trust your trading system to not cause you to lose too much money. When this occurs it is important to always stick to your swing trading entry and exit strategies. I have often seen individuals get cocky and think that they have everything figured out. When they become overconfident they begin to think that every stock they pick will work out and they take larger chances than they should and they fail to follow their system. This inevitably will lead to losses in their account. This is the greed portion of the emotions. Fear causes you to freeze in your tracks and not take action at times. Greed causes you to take risks that you have no business taking.

It is important that you learn to control both emotions. If you do then you have a great foundation to becoming a very successful swing trader.