Is Swing Trading Profitable? Top 3 Factors Making a Living as Swing Trader (Overview) (2024)

Last Updated on 23 January, 2024 by Rejaul Karim

When enquiring about whether swing trading is for you, one of the most sensible things to ask is if you can make a lot of money. So, is swing trading profitable?

Yes, swing trading is profitable, and you certainly can beat the market over long periods of time. However, this requires a good trading strategy, and enough discipline to stay with it throughout its ups and downs.

In this article, we’ll have a look at what determines how much money you can make as a swing trader, and what you should focus on to make more money.

Let’s start

How Much Money Can You Make From Swing Trading?

There are a lot of factors that determine how much money you can make, but these three are the most significant ones:

• The trading strategy
• Opportunity
• Position size

Let’s take them one by one.

The swing trading strategy

One of the main determinants of how much money you can make is the swing trading strategy you use. Quite logically, a good strategy is more likely to make a lot of money than a bad one.

However, most people who want to start trading don’t even have a working trading strategy, even if they believe they do. To be sure that you have something that works, you must first have verified the strategy on historical data. This is something we cover more in-depth in our article on how to build a trading strategy.

Opportunity

The second important aspect is the opportunity, which simply is how often your strategy gives a signal to buy. The number of signals you get is not only decided by the strategy itself, but also on how many markets you trade that strategy on. For instance, a mean reversion strategy that trades nearly all the stocks in the S&P 500 will provide a lot of signals for you to choose from, which leads to higher returns as your capital doesn’t sit idle for long periods of time.

Don’t miss: How to start swing trading

Position Size

This one is quite obvious. The more money you risk, the more money you’ll make or lose on each trade.

However, the size of your trades shouldn’t be determined by how much you want to make, but by how much you can risk. Trading is a marathon that should be done long term. Thus, it’s paramount that you preserve your capital to be able to trade not only today, but also tomorrow.

Generally, you should try to never risk more than 2% of your account balance on one trade! This ensures that you’ll be able to continue trading, even if you’re hit by a streak of losing trades!

So How Much Money Can You Make?

Having covered the three factors that determine how much money you’ll make, we’ll now discuss what types of returns that are reasonable.

In general, we would say that any return from 10 to 30% is reasonable to expect in the long run, provided that you have a strategy that works, and manage to carry out the signals in a correct manner.

As with the stock market in general, these gains won’t be evenly distributed over all years. It’s not uncommon to experience drawdowns that may persist for as long as a year. Conversely, you’ll have great periods when everything seems to go your way as you achieve outstanding yearly returns!

This is the reason why a long term outlook is important in trading. Profits tend to come in bug chunks now and then, and many new traders stop trading during a prolonged drawdown, just to see their trading strategy take off shortly thereafter.

Don’t miss: Is Swing Trading Hard?

Related reading: Is Swing Trading More Profitable (better) Than Long-Term Investing?

But Can’t I Make More?

We know that there are a lot of traders and vendors that claim that you can make a lot more, and we won’t say they’re lying.

However, what is 100% certain, is that most traders won’t get much higher returns long term than these. Nonetheless, this shouldn’t come as a disappointment for those who are into trading long term. Achieving a 20% average annual return will take you extremely far in the long run.

In fact, with a 20% annual return after taxes, you’ll have more than 6 times the original sum after 10 years.

And after 20 years, that will be 38 times the original sum.

Remember that there are many get-rich-quick schemes that promise quick and easy riches. These are nothing but scams and should be avoided at all costs. The quickest way to become rich is through long-term planning and consistency. If you understand this, you have come further than most other people, and actually stand a real chance to become rich one day!

How to Maximize Your Swing Trading Returns

Okay, so now we’ll get directly to the most interesting part of this article, which is how you can maximize and improve your swing trading returns.

Just before we go on, I want to encourage everybody who yet hasn’t started swing trading to read our complete guide to swing trading. There you’ll learn a lot of valuable know-how that certainly will fast track your learning curve!

When looking to improve our trading performance, there are three areas we should focus on, namely:

• The trading strategy
• opportunity
• Transactional Costs

The Trading Strategy

As we went through earlier, the trading strategy is the tool that will give you an advantage in the markets, which means that your returns are very dependent on the quality of that strategy. This is something we’ve already covered, so we wanted to shed some light on another important factor, which is diversification across several types of strategies.

By trading more than one trading strategy, you’re becoming less dependant on one type of market behavior. For example. mean reversion strategies that enter once a stock has fallen too much are going to issue most of their signals once the market has fallen a lot. And since most stocks are very correlated, you’ll find that you sometimes have way more signals than you can take, while there will be some other periods when the strategy is flat, since most stocks are making new highs.

Due to this reason, it’s good to rely on several trading strategies that don’t use the exact same logic. Preferably, you should have strategies that work by the exact opposite logics, such as trend following and mean reversion. That way you’ll experience less flat periods, since your trend following system will kick in as most stocks go higher, while your mean reversion strategy will kick in as soon as the market has become oversold.

Opportunity

As we discussed earlier, having a lot of signals to choose from is crucial when it comes to trading performance. We want to have our capital in the markets, not lying around in cash.

Now, in addition to trading more trading strategies, you may also decide to enter into new markets on other exchanges or even foreign countries. There are several brokers that let you trade foreign markets in a cost-effective and cheap way. Interactive brokers are the perhaps most used and trusted alternative.

Beware of Transactional Costs!

Keeping costs low is absolutely crucial in order to have your account grow as fast as possible. Even though a couple of dollars in commission might not sound that much, it quickly adds up over time. Especially if you trade a system that has many trades and a relatively low average trade.

Today there are many brokers who have started to offer free commission on trades, which makes it much easier for new traders – especially for those with small accounts – to start trading.

Another useful tip is to try to trade markets and stocks with high volume. Doing so, you’ll incur less slippage, which otherwise could have a quite significant impact on your trading performance!

Swing Trading VS Day trading: Which One Is More Profitable?

Many new traders want to learn day trading since they believe that it’s the way to quick and easy profits. Often times they have watched the videos and material of many fake trading gurus, who promise that everybody can day trade with ease and that profits will accrue if you just follow their secret trading strategy.

Well, if anybody tells you this, run as fast as you can, because you’re getting scammed!

Day trading is of the hardest trading forms to master, both from a psychological and technical perspective. Daytrading strategies are much harder to find than swing trading strategies, and operating them requires another level of stamina. A swing trading strategy can be operated with as little as 15 minutes spent every day, which cannot be compared to the constant monitoring that’s required to run a day trading strategy.

Because of these reasons, swing trading is a much more feasible trading style for most investors.

In addition, day trading strategies are much more sensible to slippage and other transactional costs, since they generally have a quite small average trade.

So, for most people, the short answer is that swing trading is the more profitable option!

Related reading: Does Swing Trading Work?

FAQ

Can swing trading be a lucrative investment strategy?

It is possible for swing trading to be a lucrative investment strategy, but it is not guaranteed. Like any investment approach, swing trading carries risks and it is important for traders to thoroughly research and understand the market before making trades.

Is it possible to make money through swing trading?

Yes, it is possible to make money through swing trading. However, there are no guarantees in the stock market and swing trading carries risks like any other investment approach.

What are the potential

returns of swing trading?

The potential returns of swing trading can vary widely depending on a number of factors, including the trader’s level of experience, risk tolerance, and the overall performance of the market. It is important for traders to carefully consider their investment goals and risk appetite before engaging in swing trading.

Can swing trading be a reliable source of income?

Swing trading can potentially be a reliable source of income, but it is not guaranteed. As with any investment approach, swing trading carries risks and it is important for traders to thoroughly research and understand the market before making trades.

How profitable is swing trading compared to other investment approaches?

It is difficult to compare the profitability of swing trading to other investment approaches, as the potential returns can vary widely depending on a number of factors such as the trader’s level of experience, risk tolerance, and the overall performance of the market. It is important for traders to carefully consider their investment goals and risk appetite before deciding on an investment strategy.

Is it common for swing traders to see profit?

It is not uncommon for swing traders to see profit, but it is not guaranteed. As with any investment approach, swing trading carries risks and it is important for traders to thoroughly research and understand the market before making trades.

How successful can swing traders be in the long run?

The success of swing traders in the long run can vary widely depending on a number of factors, such as the trader’s level of experience, risk tolerance, and the overall performance of the market. It is important for traders to carefully consider their investment goals and risk appetite before engaging in swing trading.

Are the profits from swing trading consistent or sporadic?

The profits from swing trading can be either consistent or sporadic, depending on a number of factors such as the trader’s level of experience, risk tolerance, and the overall performance of the market. It is important for traders to carefully consider their investment goals and risk appetite before deciding on an investment strategy.

How much money can be made through swing trading on average?

It is difficult to determine how much money can be made through swing trading on average, as the potential returns can vary widely depending on a number of factors such as the trader’s level of experience, risk tolerance, and the overall performance of the market. It is important for traders to carefully consider their investment goals and risk appetite before deciding on an investment strategy.

Is swing trading a high-risk or low-risk investment strategy?

Swing trading can be either a high-risk or low-risk investment strategy depending on the trader’s level of risk tolerance and the specific trades they make. It is important for traders to carefully consider their investment goals and risk appetite before deciding on an investment strategy.

Ending Words

As a swing trader, your profit is determined by your position size, opportunity, and trading strategy. And if you get all these right, you could easily outperform the market by a quite substantial margin, which will make a huge difference long term!

If you want to learn more about swing trading, we once again recommend that you have a look at our complete swing trading guide.

Here you can find our archive with all our swing trading articles.