Transcription
We talked about the daily loss limit for day trading. Um, how about swing trading? What is the—because, well, obviously if you have like two or three trades in a in a week, it's uh, it's a whole different story.
Yeah, I think for swing trading, a weekly loss limit maybe isn't super important. A monthly loss limit may be important, but I think it's more important to have an account stop loss. Because with swing trading, the opportunities don't come so often. So for day traders, the huge problem is that you take one trade which becomes a loser, then the second trade becomes a loser; you're on tilt, you're taking a third trade which is not according to your rules.
Yeah, and uh, then it becomes a downward, downward spiral from there, and it just gets worse and worse. So that's why day traders have this loss limit, so they can actually take themselves out of the game before they do unrepairable damage to their account. But as a swing trader, there's so much time between our entries that, okay, you take a loss, that's it. Yeah, you go for dinner, you have uh, you you go to the gym, maybe you have 12 hours between your entries to normalize, to the healing process from a losing trade and so on. And then when the next trade comes around, you actually, you should be able to make a rational decision again. So I don't think a loss limit for swing traders is very conducive to the process, because you don't have a lot of trades anyway. But you should have an account loss limit. So let's say you lose 20% of your account because you are in a very long drawdown over a year or so, then you should obviously stop trading and try to figure out what's happening. That's what I think.
Right. Right. Yeah, you had a good point, I think. Because the goal—you should ask yourself why, actually, do you have a loss limit? And as a day trader, it's apparent because emotions can get very crazy on a day-to-day basis when you have a lot of trades. But yeah, if you feel, if you don't feel any emotional issues as a swing trader, then obviously there's no need for a for for a loss for a loss limit. You can just keep, keep trading as long as you feel emotionally stable. I think that's the most important. And also, that's for a day trader. Obviously, the loss limit, the loss limits from day trader to day trader will vary a lot. Some traders can take a lot of heat, um, especially when you're experienced, you have, you know, roughly what to expect in terms of drawdown. But if you, for new traders, obviously the loss limit will probably be a little bit earlier or quicker to reach because you really are always emotional, very uh, easily, and you don't really understand the the outcomes of your trading strategy just yet. So yeah, again, paying attention to how you feel is really, really important. Um, that's that's the main part, I think. And also, I mean, as a swing trader, maybe you backtested your strategy or so, and obviously it's part of your edge to take every signal that comes. And if you now have three trades losses in a row, and then you don't take the good signals it comes with the fourth trade, you're costing, you're basically destroying your own edge. So I don't think it's a good idea.
Yeah. Yeah, that's a good point.