Learn Share Trading
Dynamic vs. Static Risk Management for Swing Trading by Pristine Capra
Are you one of the many swing traders that takes the same level of risk notwithstanding the market conditions? Do you always trade “a thousand” shares just because that’s an easy number to remember? Let’s discuss some finer points that might help you to become better at managing risk.
First and foremost, a day trader should have a trading plan outlining his money management rules. Here you should establish parameters such as a “maximum loss per week-month”. When establishing a maximum loss per trade (because no one can know which trade is going to work out), the trader has to decide whether he wants to follow a more “static” approach where all his potential losses will be similar, or whether to adopt a more “dynamic” set of guidelines created with the purpose of governing when to be more aggressive, less aggressive, or not active at all.
We have to understand the fact that not all stock market conditions present the same odds for a particular trade. Let’s say for example that market “x” is in an up-trend, and has pulled back to support for several days. Today we get a reversal bar, and tomorrow the reversal is complete. Thus, the swing trader will likely find several high odds entries both today and tomorrow (depending on the tactics used, many of which are taught in Pristine.com’s online course on how to trade stocks. Then the third day comes along, the market continues to climb, and some more entries might be executed. As the market continues to rally, the odds of every new entry will diminish, as the probability of a reversal to the downside in market “x” is greater.
Based on this scenario, in swing trading, a trader might enter into larger positions on days one and two, and might reduce his share lots as the market continues to climb. There will be a time when the market has climbed for 5 or 6 days in a row, and so the Swing Trader will devote more and more of his time to manage already open positions, by selling partial lots and raising his stops, instead of being too active in entering new swing positions. He might also be more active in micro trading activities.
Using some modified version of this basic concept, a Swing Trader can implement an intelligent way to participate in the markets, while reducing the risks of getting caught with big positions on a reversal contrary to his positions.
Pristine.com specializes in providing online trading courses for learning to trade in Options, Forex, Futures, Swing Trading, and many more. The advent of the internet has made trading a whole lot easier by allowing people to get all possible information about swing trading strategies and how to cleverly implement them so as to make sure your money grows.
About the Author
Pristine.com offers interactive live trading sessions where you can learn to use the Pristine Method to trade on a daily basis.Copyright © Pristine.com. All Rights Reserved. No part of this content may be reproduced without written consent from the author.
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