Three Rules to Control Your Psychology in Swing Trading

Most traders feel the heat when their emotions are calling the shots. Fear can yank them out of a promising position early, and greed can tempt them to chase a trade that doesn't quite fit their strategy.

You may also be one of those traders. Many swing traders need help with the psychological ups and downs of the markets.

But what if you could take control?

This blog explores three fundamental rules for mastering swing trading psychology: emotional control, discipline, and cultivating a positive, growth-oriented mindset. Using these powerful tools, you can make well-considered decisions, stick to your strategy, and confidently trade the markets.

So, let's unlock the full potential of your swing trading journey!

Rules to Control Trading Psychology

Swing trading psychology requires mastering your emotions to make sound decisions and stick to your strategy. Here are the top three rules you should not break;

Rule Number 1: Control Your Emotions

Emotional Control goes without saying in any trading

But for Swing Trading, it becomes all the more important.

Why?

Let's take an example to understand.

Imagine you're swing trading ABC Corp. (ABC). Using technical indicators like moving averages and relative strength index (RSI), you've identified an uptrend. Your strategy dictates buying ABC when the price breaks above a key resistance level ($20 per share) and exiting when the RSI indicates overbought conditions or the price falls below a support level ($18 per share).

So, how do you face Emotional Challenges in such a situation?

Let's say ABC's price is near $20, but you hesitate to buy, worried it might pull back. The price surges past $20, and you chase the trade, buying impulsively at $20.50. FOMO influences your decision, potentially causing you to enter at a less favorable price point.

We know watching a price swing in your favor after you missed the entry point can be tempting. But it would help if you remembered that sticking to your trading plan and waiting for your entry signals is crucial for avoiding impulsive decisions.

Things can go the other way as well in swing trading

Let's say, in the same example, ABC breaks $20, and you buy as planned. But, Shortly after, the price dips slightly. Fearing a reversal, you sell at a slight loss ($19.80). This fear of loss caused you to exit prematurely, missing out on potential profits if the uptrend resumes.

See?

When a trade goes against you, the fear of losing money can lead to panic selling. A stop-loss order set in advance helps manage this fear by automatically exiting the trade if the price goes against you.

And the story doesn’t end here;

Suppose again that after your losing trade, ABC rebounded towards $20. Eager to recoup your losses, you buy back at $19.70 without waiting for your entry signal (price breaking above $20). This revenge trade is driven by emotion and could lead to further losses.

This is revenge Trading.

The rule is,

Don't chase after losses by placing emotional trades to try and win back your money. This can lead to a bigger spiral. Stick to your trading strategy and wait for the next setup.

And,

Feel free to be in the market only sometimes. Swing trading is about capitalizing on good opportunities, so be patient and wait for your setups to develop.

So, What should you do, ideally,  in this example?

You patiently wait for ABC to break above $20 and confirm the uptrend with your indicators. Then, adhering to your entry strategy, you buy at $20.10.

See,

Patience is a virtue seldom traders have!

The best swing trades often come from waiting for straightforward entry and exit signals based on your technical analysis. Don't force trades or take them based on emotions.

And not only in entering the trades, patience is required.

It would help if you were also patient when trying to make a profit.

Once you're in a winning trade, give it room to breathe. Don't jump out too early out of fear of missing out on profits. Use trailing stop-loss orders to lock in profits as the price moves in your favor.

By mastering your emotions and staying disciplined, you can make well-thought-out decisions based on your swing trading strategy, not fear or greed.

Rule Number 2: Be Disciplined

Success in swing trading hinges on discipline, a must-have skill often emphasized by famous traders like Mark Douglas. It's the foundation for making sound decisions and avoiding emotional pitfalls.

And how do you stay disciplined?

By giving adherence to your Strategy

Sticking to your strategy means sticking to your predefined trading plan, which is, again a psychological obstacle for most traders.

Before entering any trade, swing traders should have a clearly defined trading plan. This plan should outline their entry and exit criteria, risk management parameters (stop-loss placement), and position sizing strategy.

Once you've developed your trading plan, discipline comes into play. Follow it religiously, and don't deviate from it based on emotions or market noise. If market conditions don't align with your strategy, have the discipline to stay out of the trade.

And you should not only follow your trading plan, you should follow it with

Consistency

Consistency involves applying your trading rules and strategies uniformly across all your trades. This eliminates bias and ensures you make objective decisions based on your plan, not emotions or recent market performance.

Do you know what experienced traders say?

Trade the System, Not the Outcome!

It would help if you focused on consistently executing your swing trading strategy rather than chasing specific outcomes. By sticking to your plan, you'll build a track record of data based on your strategy's effectiveness. This data can then be used to refine your approach over time.

Let's take an example to soak in these concepts of sticking to the plan and consistency.

Based on your technical analysis, imagine you identify a swing trading opportunity for XYZ stock. Your plan dictates buying when the price breaks above a resistance level ($10) and exiting when the RSI indicates overbought conditions ( Some scanners can also identify these exit signals based on overbought and oversold conditions). The price approaches $10, but you hesitate due to a recent losing trade (emotional bias).

This is the point where sticking to the trade plan comes in!

Sticking to your plan requires overcoming this hesitation and entering the trade only if the price confirms the breakout.

Let's take one more example ( yes! examples create more clarity)

Ok, so you enter a swing trade based on your strategy. The price dips slightly after entry, triggering fear of loss. Discipline requires avoiding the urge to sell prematurely. Instead, trust your plan and wait for your predetermined exit signals (RSI or stop-loss) before taking action.

By adhering to your trading plan and consistently applying your swing trading strategies, you can cultivate discipline, a crucial ingredient for long-term market success.

Remember, even experienced traders face emotional challenges. The key is to have a plan and the discipline to follow it through, regardless of market conditions or your emotional state.

Number 3: Cultivate a Positive and Growth Oriented Mindset

You must have noticed that,

Your mindset significantly impacts your approach to trading.

So, what you need to do is to cultivate a growth mindset. Cultivating a growth mindset and a positive attitude can propel you forward:

And How do you do it?

Through

Continuous Learning. It would help if you embraced the idea that swing trading is a lifelong learning process. There's always something new to learn about the markets, technical analysis, and even yourself as a trader. Be curious, experiment with different strategies, analyze your results, and constantly seek improvement.

And continuous learning makes you.

Adaptable to Change.

Markets are dynamic and ever-changing. A growth mindset allows you to adapt your strategies as needed. Be bold and adjust your approach based on new information or changing market conditions. View setbacks as learning opportunities and use them to refine your skills.

Apart from having a growth mindset, You need to have a

Positive Attitude as well.

This attitude keeps you.

Optimistic during Losses

See, Losses are inevitable in trading. A positive attitude helps you maintain perspective. Analyze losing trades to identify areas for improvement, but don't dwell on them. Focus on the next opportunity and trust your trading plan.

And

Keep a Firm Belief in Your Abilities

Develop a healthy level of self-confidence in your trading skills. This doesn't mean arrogance but rather a belief in your ability to learn, adapt, and make sound decisions based on your strategy.

Let's take a couple of examples.

Imagine you experience a string of losing trades. A fixed mindset might lead to discouragement and abandoning your strategy. However, with a growth mindset, you would analyze your trades, identify potential areas for improvement in your plan or execution, and adjust accordingly. You view these losses as learning experiences that will make you a better trader in the long run.

Another example is when the market suddenly moves against one of your swing trades. A positive attitude lets you stay calm, trust your stop-loss orders to manage risk, and avoid panicking out of the trade. Based on your strategy, you then identify the next potential trading opportunity.

By cultivating a growth mindset and a positive attitude, you become a resilient swing trader who can learn from both wins and losses, constantly improve your skills, and approach the markets with optimism and confidence.

Remember, The right mindset will empower you to navigate the inevitable challenges and stay focused on your long-term goals.

Trade Smarter!