Risk Management in Swing Trading

You must understand that trading in the stock markets itself is risky because of the basic features on which the markets trade.

Yes, price fluctuations of shares are a normal aspect of trading. Depending upon the nature of trade, experts have categorized stock trading into intraday trading, swing trading, future and options trading.

Although swing trading is most comforting, due to its characteristics like short-term returns covering it from a few days to a few weeks, it does contract risks.

Let me speak about swing trading risks, and give a few tips on how to manage your trades professionally.

Such steps can help you in avoiding losses on your capital investment.

Common Risks in Swing Trading:

The most common risks that are attributed to swing trading are volatility, improper technical analysis, and unexpected news events.

Some of the risks that can be added to it are market risk, liquidity risk, operational risk, and credit risk. Volatility in share prices and international stock markets can influence your investments, they can make you lose your money.

Liquidity risk: The term liquidity risk arises when you are unable to meet short-term financial obligations. It happens whenever you are unable to convert assets into cash.

You can encounter such situations in stock markets due to a lack of stock buyers, sudden crash outflow, or imbalance in the supply-demand of a particular security.

Credit risk arises due to loss of money when the counterparty defaults on their commitments.

Liquidity risk occurs when your stocks do not sell out at your determined prices.

Operational risk occurs when you lose money due to technical errors in the stock market systems.

To cite an example, the slippage in the stock prices can cause a loss of 10% and this may not give your expected returns on investments.

Risk Management Techniques in Swing Trading:

To minimize losses that occur in swing trading, you are advised to undertake the following precautions.

Always apply a stop-loss technique that shall apply brakes to your losses when you opt for option put contracts.

Stop loss will enable you to manage your risk by exiting a position if the price of your asset begins to move in opposition to the current position.

Portfolio diversification is a key strategy to manage risk in swing trading.

Entry and exit of your stocks in trading is the key feature to manage your impending risks. You can apply the following techniques as a measure to check the risks as well. You can count on trading off support or resistance, breakout string strategy, fading trading strategy, Fibonacci retracement, and trend-catching techniques.