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Some of the most common inquiries we receive about swing trading concern how much money you can make. Often, the query refers to a certain time period, such as a day, week, or year. So, what are the realistic swing trading returns and how much money can you truly make from swing trading?
Swing trading can generate an average annual return of 10%-40% if you have an effective trading technique. A multitude of factors will influence your swing trading returns, including position sizing, opportunity, and your ability to adhere to your trading strategy’s principles.
In this post, we will look at the numerous factors that influence the returns you might expect from swing trading. And, unlike much of the information available online, this will be based on many years of real trading experience, not only what returns we have achieved, but also what we have witnessed many other traders achieve.
Can You Earn Money Every Week/Month/Year?
First, we’ll look at how consistent your gains can be in the markets. This is a topic that many people have unreasonable expectations about, and we firmly feel that you should have studied it before beginning your swing trading career!
Also Read: Is Swing Trading More Profitable than Long-Term Investing?
You cannot be rewarding every day, week, or month!
The first thing to understand about trading is that the money does not come in even amounts, once every day. Instead, you’ll go through long periods of not making any money and largely losing trades.
This is the hard truth of trading that most merchants refuse to discuss. Instead, they continue to mislead their clients by feeding them lies about how to be consistently lucrative every day or week.
This is not true for any trading system, despite what some historical simulations may suggest. The markets are constantly changing, and even if you find certain sets of rules that have performed well in the past, their performance will worsen over time, resulting in lengthier losing spells in the future. This is an unavoidable aspect of trading that must be recognized.
Can You Be Profitable Every Few Months?
While it is incredibly difficult to remain continuously successful month after month, it is feasible to set new equity highs every few months, even if most traders do not achieve this level of performance. The problem is that the majority of your revenues are typically generated in a relatively short period of time. As a result, you may have to endure some lengthy drawdowns before things begin to improve.
We believe that aiming to be profitable on a yearly basis is a sensible goal, as this would involve outperforming the bulk of actively managed mutual funds. That isn’t too bad after all!
What are the Realistic Swing Trading Returns you can make?
After establishing that swing trading requires longer time periods to generate consistent profits, the obvious issue is how much money you can make.
Now, this topic is dependent on so many aspects that it is impossible to make a reasonable answer that does not cover a wide range. We estimate that trading with a suitable risk threshold can result in annual returns of 10-40% on average. Year-to-year returns will vary greatly, with some years being outstanding and others providing only a little return. This is why we cannot stress enough the importance of swing trading over time!
Even though generating 25% returns on average may appear unimpressive, it actually means that your capital will double every 5 years, depending on your tax status. That’s more than twice the typical index fund rate, and it will have a significant long-term impact on your money!
With that out of the way, we’ll get to the important stuff, which are the criteria that determine how much money you can make!
What Indicates How Much Money You Can Make Swing Trading?
According to us, the criteria that affect how much money you can make in swing trading can be reduced to the following four points:
1. Opportunity
The number of opportunities or trades available to you has a significant impact on how much money you make in the end. Simply put, you want your capital to work for you by moving in and out of trades rather than sitting around in cash.
The number of trades you can make is heavily determined by the universe of equities you trade. For example, if you just consider the largest stocks, you may have only 100 options. If you broaden your scope and opt to trade all equities in the Russell 2000 index, for example, the number of trades you can make increases dramatically.
Another advantage of having a large selection of stocks and trading signals to pick from is that you can allocate a lesser amount of your capital to each trade. This will help to diversify the risks and make your portfolio’s performance more consistent.
We support trading 5-6 equities at once to reduce drawdowns and increase the effect of losing trades.
2. Your Risk Level
Your risk level, or the amount risked on each trade, will have a significant impact on your performance. For example, if you have a small number of trades and risk 2% on each instead of 1%, you’ll quadruple your gains. However, your risk level will be significantly elevated, albeit tolerable!
3. The number of strategies you trade and their robustness
Continuing with the previous concept of opportunity, the number of strategies you choose to trade, and their strength will have a big impact on your returns. Everything boils down to the following points:
- Strategies that are robust are more likely to perform well in live trading. Thus, a strong plan equals higher profits.
- Using many trading techniques increases opportunities and allows for longer-term capital growth. Even better if your techniques rely on contrary logics, such as mean reversion and trend following!
4. Your Ability to Execute Strategies
Having a competent trading strategy and money management guidelines is insufficient without adhering to the regulations of your approach. Traders often struggle with the psychological challenges of trading, leading to violations of their values.
To avoid causing unnecessary harm to your trading account, it’s crucial to have a plan for calming your nerves during stressful situations. Maintaining a trading diary might help you organize your thoughts and enhance your trading skills.
Final Words
Many people believe that trading can produce annual profits of several hundred percent. Unfortunately, this is not achievable without excessive risk-taking, which will result in bankruptcy sooner or later.
However, the gains you can make as a swing trader are absolutely worthwhile. Especially since swing trading is a fast-paced trading style!
Frequently Asked Questions
How much money can I realistically make in swing trading?
Swing trading can generate an average annual return of 10%-40%, if you have an effective trading method. Position sizing, trading opportunities, and your ability to adhere to the principles of your strategy all have an impact on your returns.
Can I make money every day, week, or month in swing trading?
No, expecting steady earnings every day, week, or month from swing trading is unreasonable. Trading includes times of no profit and probable losses. It is critical to remember that market dynamics shift, and steady daily or weekly earnings are not possible.
What factors affect how much money I can make in swing trading?
Several factors influence your swing trading profitability, including the quantity of trading opportunities, your risk tolerance, the number of techniques you employ, and your ability to implement those strategies. The sum of these elements determines your total return.
