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Advice For Beginning Swing Traders – 9 Rules All Traders Must Follow

Since I have had this website I get asked frequently by beginners just starting out for advice. I have put together a list of guidelines and rules you should follow when starting out. If you follow them, you will avoid a great majority of mistakes made by beginners (and myself).

Advice For Beginning Swing Traders

Trade With Risk Capital Only

Having confidence is great, but being realistic is more important. If you use a stock picking service, your odds of success increase dramatically, but statistically, most beginners go through rough periods when learning the ropes.  It’s no different than anything else in life while your learning, you need to be careful, start small and use risk capital. You can always increase your positions later, but if you run out of  money to trade with, you’re out of the game.

Do Not Over Leverage Yourself

Stock Account Margin and leverage are tools for swing traders who know how to manage risk properly. When starting out your positions should be very small.

Your goal should be to create profits, no matter how small. Once your method is profitable you can then increase your position size.

Never Add To Losing Position

Don’t throw good money after bad, a losing position is a losing position that needs to be closed out. You will be more objective after you liquidate a losing position. No one makes money holding on to a losing position.

Use Stop Loss And Profit Targets

This advice appears in most swing trading books for beginners but, it cannot be emphasized strongly enough, you simply must use stop loss orders and profit targets.

Place these orders at the same time you place your entry order so you don’t avoid or forget doing it later. This is the NUMBER ONE reason traders go belly up when first starting trading.

Do Not Use Advanced Strategies

There is ZERO correlation between advanced strategies and profitability. I know several traders who use simple strategies and have been doing so for over 30 years.

They have good weeks and bad weeks but don’t abandon using their simple strategies for complex ones because it doesn’t work every single week.

Do Not Buy Stocks From Emails or Advertisements

I get about 10 to 20 emails daily about some hot company that is about to take off. The great majority of these companies are not worth the paper their stock is written on. Avoid “tips” for trades and rely on your own analysis or a professional stock picking service. Remember, if the stock was so great they wouldn’t be telling you about it!

Avoid Penny Stocks When Starting Out

Until you have more experience and know how to take CONTROLLED risks, you should avoid penny stocks(stocks under $1.00)

Now this is not to say you should avoid small and microcap stocks. In fact, these are where the best TRADING opportunities are.

Don’t Forget About Correlation

This is another rule beginners and many traders forget about. What does this mean? If you trade AMD and INTEL stock at the same time,  you are trading stocks that are trading similarly about 80 percent of the time. You will be better off buying more shares of the stronger company or that has a better chart pattern.

If you have NO Experience Buying Stocks Consider Paper Trading

There is terminology and order placement that you simply have to know. It can be very expensive to learn it with REAL money. It takes time to get used to and remember; bid/offer, long/short, limit order, market order etc.

All these terms have specific meanings and if you make a mistake you could be holding a position that you thought you sold days earlier. Paper trading will NOT teach you to be a good trader, but it can get you familiar with the basics so that when you do place real orders, you will be more confident with what you’re doing and this will help you prevent mistakes.

If you follow these swing trading help for beginners tips, you will avoid the most common errors made by traders. I will say it again, if you are just starting out, then using the swing trading service will start you on the right path. They can teach you the ropes.

Here are the two stock picking services I use:

Jason Bond Picks Review

Microcap Millionaires Review

Regardless of which Stock Picking Service you use or if even if you choose to go it alone, please download my two trading guides; 7 Habits of Millionaire Traders and How to Take the Proper Size Position for Your Account

NO strings attached, NO email required.

Trading Guides

If you are looking to open a brokerage account or looking for a better one, I wrote some reviews of brokers I have used and currently using.

OptionsHouse Review (Currently Using)

Scottrade Review  (Used when I first started)

If you have any questions about Microcap Millionaires, Jason Bond Picks or any of the other stock picking services I have reviewed, feel free to contact me and I will get back with you as soon as I can.

– Robert Walsh