From my own personal experience, the most difficult lesson for swing traders to learn is not how or even when to place a trade, but surprisingly, when not to.
I can't begin to tell you how many times I've continued trading long after the market flashed warning signs indicating that the party was over and the guests had left. Almost invariably, for me, this type of hyperactive trading ended badly.
So why do people continue to do this? Well, I think human nature being what it is, there seems to be a built-in tendency on the part of anyone following the market on a day-to-day basis to do something with this expenditure of time - namely, continue to place trades.
Then too, I think there's a certain adrenaline rush that comes with a winning trade, and maybe physiologically - almost akin to a drug fix - we just want to experience that rush again, so we keep looking for opportunities to get it. This is especially true immediately after the market has staged an impressive run up and we've realized some some big recent gains.
So, what's the cure? Well, losing money on a trade cures some people, but then each time the market heads south, the circumstances seem a little different. The second, less painful cure to hyperactive trading is simply recognizing that institutions drive the market, and the trading activities of these institutions (hedge funds, mutual funds, pension funds, insurance companies, etc.) shows up as big volume.
So, when you see an accumulation of up days on lower volume than the previous day on the major market indexes (the Nasdaq, S&P 500, the NYSE composite and the Dow), or higher volume than the previous day on down days, start getting increasingly defensive.
By "defensive," I mean selling those stocks that are losing money, taking some profits on some of your big winners (if you haven't already), reducing the number of shares you're holding, and yes, no longer placing new trades.
The great trader Jesse Livermore once said that the market goes up about a third of the time, goes sideways about a third of the time and goes down about a third of the time. So if you buy stocks with the intention of seeing them go up, why would you want to be placing trades 100% of the time?
What are your thoughts on how to swing trade?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.