How to Swing Trade Summary (C11): 4 Swing Trading Rules

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There are two risk factors the swing trader must be aware of:

1. Holding positions overnight

2. Over-the-counter and penny stocks

Both these things can do damage to your bottom line.

Fortunately, there are some general rules you can follow to protect yourself.

Unlike a day-trader, a swing trader will often hold assets over periods when the market is closed, such as at night and over weekends.

During these closed periods, changes still occur, but since the market is closed you can’t buy or sell until the next open day. This can have detrimental effects on your bottom line.

Some things that might affect an asset's price during closed periods include earnings reports, product announcements, secondary offerings, general news events (such as a new president or new technology), etc.

Here are three rules you can follow to protect yourself:

1. Avoid holding a position through earnings reports and other known events (e.g. product release dates).

2. Do your due diligence on fundamental research.

3. Stick to your risk-reward plan.

Over-the-counter stocks (OTC) are traded off the main exchanges (such as the Nasdaq or NYSE) because they are too small to get listed.

Instead, these unlisted stocks are traded through dealers.

Stay away from them as they are more susceptible to price manipulation.

The same is true for penny stocks, which are stocks valued under $1 per share.

There are so many assets for you to trade in the major exchanges. There is no need for you to increase your risk by dealing in OTC or penny stocks.

So rule number four is to only trade in stocks found on major exchanges that are selling for at least $2 per share.

Read the next chapter here.

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