A consistent swing trading system needs us to balance between these 3 pillars in a way that suits our personality and limitations
This can be a little overwhelming, but we will try to understand 3 terms which will help us zero in on the kind of swing trading which will be best suited for us
We would take an example of Stock A and Stock B.
Note: You may refer to the Glossary of Popular Trading Terms in case something doesn't click
1st Component : Sizing the Bet
Size of the bet decides the amount you want to allocate
Implication:
Even a 100% gainers WON'T make a difference if you do not have a significant position and allocation
Challenge:
Needs belief in system and sense of scaling up and down
2nd Component: Deciding the stops
Stops decide the Risk per trade you are willing to take
Implication:
With the same amount of gain and impact on portfolio, if the Risk is kept Small and stops are kept tight it allows us to have a larger RR.
This means it is easier to scale with small risks, thereby avoiding drawdowns.
Challenge:
Tighter stops system have a low win rate and it requires mindset to think in probabilities
3rd Component: Ability to ride winners
Ability to ride winners and get the best out of the position decides the Reward multiple you will get
Implication:
With the same allocation and risk , if the RR is better it has a better impact of the portfolio
Challenge:
Ability to ride winners and identification of big movers. This coupled with a focus on process and not the result is Discipline
A correct balance of these 3 ingredients helps us in coming closer to our maximum potential. This is one of the key things which has to be factored in while practicing and learning swing trading
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