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Understanding the maths of swing trading

Posted on 1/26/2012

Swing traders look for 5 to 20% kind of moves in a short period of time.

In order for these moves to make a difference to your account you need to understand the maths of returns.

Let us say you hold 20 positions of same size in your 100k account. Then each position becomes 5k. Let us say a stock you buy goes up 10% after entry , how much is it going to contribute to your overall profit.

Only .5%. You will need 200 such trade for a 100% returns.

But wait a minute for most traders the success rate of a trade actually working is going to be around 50% only. Which will mean 200 trades will not get you to doubling.

Supposing you risk 25% on each trade instead of 5% of capital. Then a trade with 10% potential will give you 2.5% overall return. If it is 20% return trade it will give you 5% overall return on your capital. You will need roughly 15 consecutive trades of 5% overall profit to double your money.

And you can keep on doing this math to understand the maths of swing trading better.

The implication of that is in order to make big returns in a year you will need anywhere from 300 to 100 trades depending on how much you risk per trade.

If you do not want to do that then position trade. You can if you have skills  look for position trading method which will you that kind of return in 4 to 5 trades.  Very few people in the trading world will have that skill.

The easier path is to swing trade and expect to make 300 to 400 trade if you are looking for triple digit kind of gains.

But at the same time, everyday look for opportunity where you can put in 25% or more of your capital in one idea. In a year if you get few of those big wins of 4 to 5% or 10% returns on your capital, it then drives your returns higher.

If you understand this maths you will also understand why good day traders make big returns. It is simple maths, there per position risk is higher. A day trader often puts in significantly large part of his capital in one single trade. So even a small 3 to 4% profit contributes more to his or her returns. Add to that leverage and you are looking at magnified returns.

Now let us suppose you understand this maths , how can you use it in real life trading.

1. Look for opportunities to put bigger amount of capital per trade while managing risk

2. Strive to keep per trade loss as low as possible. It does not matter if you have lot of scratch  trades you close immediately if they do not work

3. Focus on Stockbee Dollar breakouts, they offer you opportunity to risk bigger per trade.

4. Stop dreaming about doubling money in few trades (if that happens that is bonus, but you do not base your method on that if you are swing trader)

5. If you are holding 40 to 50 small positions, realistically look at the probability of you making big returns. It will be low. Mutual funds do that and that is why their returns suck.

Most importantly understand the maths of swing trading means finding 20 or so swing trades in a year  where you can risk big......

Are you serious about your trading?

If you are serious about your trading and want to build an enduring edge the Stockbee Member site might help you. Members tell me they have tried lot of things before coming to my site and it has offered them the most extensive and detailed methods to swing and position trade.

It is only for those who want to develop their own self sufficient trading method. It is not a stock picking service. It is service for you to build your own scans and trading method to have your own daily pick based on your method.

Be warned it will take you time to learn to trade. Learning to trade is difficult art and unless you are willing to spend months or years to perfect your strategy and also develop your mental edge you are unlikely to succeed in this game. Unless you understand that no site, no service, and no mentoring is going to work.

Why traders come to stockbee?

The member site is one of the most recommended site for learning to trade by other traders and bloggers. You will see no advertising, no hard marketing, no promotions, no free offers, no affiliate marketing, no incentive to other bloggers to promote the site, no constant twits self promoting the site, no free trial  and no tall claims of making you instantly wealthy, and yet the site attracts new  members everyday. Members come from all walks of life and all kinds of trading size and trading styles.

You will see that many trading bloggers have been using my market timing methods, scans , stock ranking lists and chart templates. They have developed their own methods based on my methods. Many paid newsletter site recommend my site to their subscriber for learning about trading and market.

Over the years thousands of traders have been members and those who benefited from the learning talk about the site to others or talk about the methods used and that is how new members learn about the site.

What will I learn in the members site?

The members site will give you in depth understanding to develop your own trading method. The emphasis is on making you self sufficient and confident of your own trading method and style.

As a member you will learn the basics of swing trading, momentum investing, growth investing and risk management.

You will learn about Stockbee Trend Intensity Breakouts method that uses momentum based swing trading to find 3 to 5 day swing trades for 8 to 40% profit.

You will learn about Stockbee Episodic Pivots Breakout method which uses Post Earnings Announcement Drift (PEAD) to find stocks that had a game changing earnings and that are likely to rally for 3 months to 12 months.

You will learn about  Stockbee Dollar Breakout method that uses momentum, range expansion and swing trading approach to find 5 to 40 dollar moves in high priced stocks.

You will learn about  Stockbee Lemonade Strategy for 401k which uses market timing and momentum to invest in 401k. You will get weekly update on how I am using the strategy on our 401k to do allocation decision.

You will learn about Stockbee Market Monitor method for market timing using breadth. It allows you to avoid risky periods in market and allows you to identify market turns. It is used for 401k allocation decisions.

You will learn about Stockbee Double Trouble method to find stock with confirmed upside momentum using anchored momentum and that are likely to continue their up move.

You will learn about Stockbee Night Time is Right Time method to find news catalyst based trade ideas for short term day trade and swing trade.

You will learn about Investor's Business Daily’s IBD 200 list and how it can be used to find swing trading candidates for explosive moves.

You will learn about Telechart 2000 and how to use it effectively to scan for swing and position trade ideas and to set up your 401k strategy.

You will learn about Jesse Livermore Range Breakout, Darvas Box setup, and many other member shared methods.

You will learn how to set up your own scans, select right kind of stocks, how to set up stops, when to enter , when to exit, how much to risk, how to track your trades and all other details about trading. You will learn about developing your own methods and not relying on others for trade ideas.

The site has hundreds of videos and trading methods and variation of methods. Members help each other in developing the methods and share actively their research and finding. A collaborative spirit allows you to get input from others on your trading ideas or problems.

The site gives you opportunity to interact with some of the most successful traders and learn from them about their trading methods. It is a vibrant community with members from different background and experience willing to help each other. The emphasis is on continuous learning and up gradation of market knowledge and setup knowledge. The members range from hedge fund employees, financial advisers, active swing traders, investors and new traders.

If you are looking to develop your own trading strategy the membership site might be for you. You have to be willing to put in the effort to build your own method. There are no silver bullets offered on members site. Every method, every scan, every nuance is detailed and all possible help is offered to design your own method.

Do you have a trial?

If you are just looking for trial you are better off trying thousands of other trading sites that offer free trial or one month trial and offer you promise of riches.

It is for those who are ready beyond the trial phase and ready to put serious months or years  of efforts to learn to trade on their own. It is for those who want to learn to find their own fish.

The free blog has all the details about the methods I trade and if you go through the posts highlighted in the sidebar you will learn about them.

How can I become a member?

To sign up go to and follow the sign up process. The site uses Paypal for payment processing.


Laser said...

throwing 25% of capital at a trade is favorable, or maybe even a little more. It's better to invest large in the best stocks and close your position quickly if your wrong, then try to find many good stocks. For example, if you invested in apple back in november with a 6% drop as your stop loss (estimating an 18% gain using 3-1 stop/gain ratios) you would've not hit your stop until after the peak at 640 and sold at 600. If you were watching closely you probably would've jumped ship at 620ish. You would've bought yours tock three months earlier at below $400 a share, for over a 50% gain. If you were on margin, you doubled your money. FInd the winners and invest big, and drop em as soon as they stop running.

Laser said...

...I wrote a long comment and it was deleted... Oh well, the jist of it is that you should invest large, like 25-50% of your capital on the best trades you can find, and drop them as soon as they start turning or immediately if they flip on you before profit if they hit your stop-losses. When trading always know ahead of time how much your willing to lose if your trade goes bad. If you notice a trade behaving unexpectedly, get out before you lose any more money. Don't be too greedy with stop losses tho, as sometimes volatility will shake you out then run up, leaving you with a loss rather than riding the gain.

nathan abbott said...

Not sure ai understand the math in your opening paragraphs...

Total account size: $100K
20 trades, $5k each = $100k total equity..

If one stock goes up 5%, you only increased you total equity by 0.25%, right?
($5k x 5%=$250 = 0.25% of $100k)

So you would need 400 of these trades to double your money, right?

Pradeep Bonde said...

Yes, but due to compounding you will need closer to say 300 trades than 400.

nathan abbott said...

Great blog, BTW. I found it last week & I am almost finished reading every post. Fantastic info, here. Thank you, Pradeep. I am learning a lot.

Pradeep Bonde said...


Unknown said...

what a bunch of non-sense. did you ever hear anything about risk and money management? if you invest 25% of your capital in one trade , that is straight gambling. protecting your capital is priority and consistent gains come with a good strategy and discipline.