Last Updated on 11 September, 2023 by Samuelsson
Swing trading is one of the most popular trading styles, and sets out to profit from medium-term price moves lasting from a few days, up to several weeks. Being less fast-paced than some other trading forms, like day trading, it’s the perfect type of trading for beginners or even more experienced traders who want a trading form that can be combined easily with a full-time job. So, given these circumstances, is trading really that profitable? Is it enough to make you rich?
Swing trading can definitely make you rich. With an average annual return of around 30%, you would double your capital every three years, which will grow to huge amounts over time. Warren Buffet, the famous investor often dubbed the “oracle of Omaha”, has built his fortune by achieving returns of around 20% annually. This really proves how compounding will do wonders long term!
Having established that it certainly is possible to become rich through swing trading, you might have some more questions that are related to the original question.
In this article we’ll try to answer the following questions:
- How much money can I realistically make in swing trading?
- How many swing traders actually end up being profitable? What can you do to increase your odds of actually becoming a winner?
- How can I get started in swing trading, in the easiest and most effective way possible?
As you see we have a lot to cover, so let’s start right away!
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How Much Money Can You Make in Swing Trading: What is a Realistic Return for a Swing Trader?
The question, how much does a swing trader make, is one that we get all the time. In fact, we have dedicated a whole article that goes into depth on what types of returns you can expect as a swing trader.
However, to provide a short answer, you could say that you can make anything between 10%-50 a year on swing trading, provided that you have a solid trading strategy that has been thoroughly tested and verified.
As you see that is a quite large range, and where your returns are going to end depend a lot on factors like:
- Position sizing- Obviously the more you risk, the bigger your winners and losers will get. As traders, we always try to strike a balance between risk and return. If we risk too much, we may risk getting totally wiped out. On the other hand, if we risk too little, our returns won’t be proportional to the effort we put in.
- Opportunity: Of course, the more trades you get to take, the higher the returns you’ll get. One way of ensuring getting enough opportunity is to trade MANY stocks. This shouldn’t be an issue given that there literally are thousands of stocks to choose from.
- Your ability to follow the strategy: Your edge lies in the strategy you trade, and deviations away from the predetermined rules are not likely to end well.
Regardless of the returns you make, anything from 10% and above must be considered a good return, since that’s around the market average. Remember that extremely few money managers, even of those who are professionals, manage to beat the market!
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What Percentage of Swing Traders are Profitable?
You probably have heard rumors that as many as 90% to 95% of traders lose money in the markets. It may seem hard to grasp, but although it is more of an educated guess, we don’t think it’s that far fetched. Most people simply won’t become rich through trading!
The issue behind these statistics lies in that most people believe they can approach the markets right away, without proper education and/or experience. This is quite a strange belief, considering that any other profession will require education or training to be carried out in a proper and correct manner.
In other words, the most important thing you can do to avoid falling the category of losing traders, is to ensure that you have the proper experience or education needed to tackle the markets. We’ll look closer at what you can and should do to learn trading, later in the article!
How Much Money Do You Need to Be a Swing Trader?: Practical Considerations
There are a couple of things you need to consider when deciding the amount of money to dedicate to your swing trading. Let’s have a look at the different factors at play, and how they affect the minimum amount required.
First of all, it’s important to remember that there really are no minimum capital requirements to start swing trading stocks. However, there are some important things to consider that indeed will decide what’s an acceptable minimum amount in your particular case.
Related: Can Futures Trading Make You Rich?
Your risk acceptance: Generally, you should keep your risk per trade to no more than a few percent of your account balance. Otherwise, you run the risk of getting into drawdowns that are irrecoverable due to their sheer size. For instance, a drawdown of 90% would require a massive return of 900% just to get back at breakeven.
The price of the stocks you trade: A stock can cost anything from a few pennies, up to thousands of dollars. In order to keep the amount risked on each trade at an acceptable level, you’ll find that you might have to abandon some of those more expensive stocks if you’re relatively low on cash.
For instance, if you have $1000 and are about to buy a stock priced at $500, and place your stop loss 10% below the entry price, it means that you’re risking a total of 5% of your total account balance. As you see, this is quite a lot more than the recommended 2-3% and might mean that you simply cannot afford to buy that stock.
Commissions: One extremely important aspect of any trading style is the impact of commissions and trading costs on your trading. Depending on the cost structure you choose, it might be so that you’ll have to take bigger positions as measured in dollars, not to have commissions take a too big chunk of your trading capital.
Therefore you should always look to keep your commission and transactional costs to a minimum! Today there even are brokers who offer $0 commission plans, that really make this issue nonexistent.
Swing Trading Course
Therefore, our course includes four ready-to-trade strategies that we use ourselves!
Read more about our Swing trading course here.
The Effect of slippage on Your Trades (Important!)
One important thing to consider before entering a stock is how liquid it is. In order to have your orders not only placed, but also executed at the price you see in the chart, there must be some buyers or sellers that are willing to accept the price you’re offering. In other words, the market must be so liquid that it can swallow your orders without any significant slippage.
Sometimes, slippage can even turn seemingly great trading strategies into losing strategies. This tends to be more of a problem with smaller stocks with very low liquidity, like many penny stocks.
If you keep trading large-cap or mid-cap stocks, this usually isn’t that much an issue. Especially considering that swing trading strategies usually have fairly big winners that can stand some slippage. Day traders, on the other hand, will often have to carefully assess the liquidity in a market, given that their individual profits tend to be relatively small.
How to Determine if a market has low liquidity
The easiest way is to look at the dollar amount or number of stocks that are traded each day on average. Very liquid stocks will have a daily trading volume of several million or tens of millions of dollars each day, which means that you’re very unlikely to get high amounts of slippage on your trades. With stocks trading in volumes of $1,000,000 or more you should be completely fine as well, provided that you aren’t trading too big positions.
Another way to quickly get a sense of the liquidity in a market is to watch how even the bars appear on the chart. If there are a lot of gaps and erratic moves, it indicates that you’re dealing with a market that isn’t very liquid.
One quick tip to continue on this theme, is to look at the lower timeframes, such as 5, 10, or 15-minute bars, and see if the same applies to those bar resolutions. The further down you can go with the moves appearing smooth, the more liquid the market is. It simply shows that despite the low timeframe, there were enough trades made during that short time period to make the bars appear even.
In the image below you see an example of a market that clearly lacks liquidity.
The image below, on the other hand, depicts a market with moderate to high liquidity.
After hours trading
The after-hours market, where you may trade some stocks outside of the regular trading hours, tends to be quite illiquid, even for some of the biggest stocks. Therefore it’s recommended that you stay within the regular trading hours as much as possible.
How to Get Started In Swing Trading
With all this covered, we just wanted to provide a few easy steps as to how you can get started with swing trading, and start your journey towards becoming rich. You could say that you can approach this in two ways:
- Learn swing trading on your own
- Take a trading course
Let’s look briefly at both these two options!
Learn swing trading on your own
It certainly is possible to learn swing trading on your own, and start your journey towards becoming rich that way. However, you’ll have to prepare yourself for a trial and error process, where most of the things you try simply won’t work at all.
Here are some short tips if you want to learn swing trading on your own:
- Learn to backtest: This is a crucial skill to have, that lets you test the historical performance of the trading strategies you’re going to trade. We would even stretch as far as saying that it’s crucial for your success as a swing trader! Be sure to check out our article on backtesting for more information on this!
- Start Building your trading strategies: When you know how to backtest your ideas, it’s time to construct the strategies that you’ll use for your trading! For more guidance on this topic, we really recommend that you read our article on how to build a trading strategy!
- Trade: Now it’s time to start trading the strategy and start your journey towards getting rich! Hopefully, if you have constructed the strategy in a correct manner, you should have the odds in your favor!
Take a trading course!
If you want to avoid the frustration of continuously trying out new approaches and ideas without finding anything, you definitely should consider taking a trading course. That way you’ll get all the tools you need to start trading right away, which in the end usually saves more money than the initial cost of the course itself.
You might think that we’re somewhat biased here at The Robust Trader, considering that we offer Trading courses ourselves. We don’t think that’s the case. We’ve simply seen too many students who have been struggling for long times, who finally get it as they learn a proper, tested trading technique!
As you see, swing trading certainly can make you rich, provided that you have a long enough outlook. Trading should be treated as a marathon, rather than a sprint since that’s when the effects of compounding come into play for real. In addition, it allows for much better risk control, since you don’t have to use reckless trade sizes to accomplish your goals in terms of returns.
If you want to learn swing trading in a quick and efficient manner, do have a look at our swing trading course. There you’ll get trading strategies that are ready to trade right away, and the framework we use to only trade those stocks that have the absolute best chances of providing good returns going forward.
Here you can find our archive with all our swing trading articles.