How to Build a Simple Swing Trading Plan from Scratch

Swing trading offers an outstanding balance between short-term day trading and long-term investing, allowing traders to capitalize on price swings over days or weeks. But without a structured trading plan, you risk making impulsive decisions that can hurt your profitability.

This guide will walk you through the essential components of a simple yet effective swing trading plan.

Step 1: Define Your Trading Goals

Before diving into the technical aspects, establish your objectives:

• What is your primary goal? (e.g., supplement income, full-time trading, capital growth)

• What is your risk tolerance? (e.g., low, moderate, high)

• How much time can you dedicate? (e.g., a few hours per week or daily monitoring)

Clear goals will help you stay disciplined and focused on your trading journey.

Step 2: Select Your Trading Universe

You need to decide what assets you'll trade. Swing traders typically focus on:

• Stocks (preferably mid to large caps for liquidity)

• ETFs

• Forex pairs

• Cryptocurrencies

Define a watchlist of 20-50 stocks or assets that fit your criteria to streamline your focus.

Step 3: Identify Your Trade Setup

A trade setup defines the conditions that must be met before you enter a trade. Some popular swing trading setups include:

• Breakout trades: Entering after a stock breaks above resistance

• Pullback trades: Buying a stock that retraces to a support level within an uptrend

• Reversal trades: Entering at the end of a downtrend with signs of a trend change

Determine which setup aligns with your trading style and practice recognizing it on charts. I strongly encourage new traders to pick one to two set-ups and focus on those two until you master them. There are many patterns, and you will feel overwhelmed if you try to learn them all immediately.

Step 4: Define Your Entry and Exit Rules

Entry Rules

Set clear guidelines for when you'll enter a trade. For example:

• Stock must be above its 50-day moving average

• RSI should be between 40-60 (neutral zone for trend continuation)

• Volume should be above the 10-day average

Exit Rules

You need predefined exit criteria for both profits and losses:

• Stop-loss: Place at a key support level or another technical stop-loss location. Never choose an arbitrary stop loss. The market does not care how much you can afford to lose.

• Profit target: Set based on a risk-reward ratio (e.g., aiming for 2x reward to risk ratio).

• Profit taking: Adjust as the trade moves in your favor to lock in profits. Consider booking one-third of your profit and then moving your stop loss up. 

Step 5: Manage Risk and Position Sizing

Risk management is crucial to long-term success. Follow these principles:

• Never risk more than 1-2% of your account per trade

• Use position sizing to determine how many shares/contracts to buy

• Diversify across different trades to avoid overexposure to a single asset

• Use the top-down trading method to analyze your trade thesis.

Step 6: Track and Review Your Trades

Keep a trading journal to log:

• Trade entry & exit points

• Reason for entering the trade

• Market conditions at the time

• Emotions during the trade

• Lessons learned

Review your journal weekly or monthly to refine your strategy and eliminate mistakes.

Step 7: Stick to Your Plan and Stay Disciplined

The best trading plan is only effective if you consistently follow it. Avoid impulsive trades, follow predefined rules, and continuously refine your strategy based on market conditions.

Final Thoughts

A simple swing trading plan keeps you focused, reduces emotional decision-making, and improves long-term profitability. By defining your goals, setups, risk management, and trade execution, you create a repeatable process that can grow your trading success over time.

Ready to take action? Start drafting and testing your trading plan in a demo account before committing to real capital!