Lots of Small Swing Trade Gains Can Add Up!

By AbovetheGreenLine

Updated September 28, 2024

You Don’t Need Big Wins: How Small, Consistent Gains Can Lead to Big Profits

In the world of trading, many beginners and even seasoned traders believe that they need to hit home runs—achieving massive 15-20% returns on each trade without ever facing a loss. While this is an exciting dream, it’s also highly unrealistic and can lead to emotional trading, unrealistic goals, and eventually, bigger losses. In reality, achieving consistent small gains over time is a more reliable way to grow wealth through swing trading. While large wins can be exciting, they often come with greater risks and are harder to achieve consistently. What many traders overlook is the power of small, steady gains combined with disciplined risk management.

The Importance of Small, Consistent Gains

Let’s break down why focusing on small, consistent gains is often more effective than chasing large wins:

Realistic Targets Are Easier to Hit: Aiming for a 2-5% gain per trade is much more achievable than trying to capture a 20% move. Large swings in the market don’t happen every day, and holding out for such moves can result in missed opportunities or worse—holding onto a trade that turns against you. By targeting smaller, realistic gains, you can more consistently hit your targets and bank profits without having to rely on rare, big moves.
Reduced Risk and Emotional Control: When you aim for small, consistent gains, you don’t have to expose your account to excessive risk. Large gains often require holding trades longer or risking more capital, which increases the potential for loss if the trade goes south. Keeping your targets modest also reduces the emotional stress that comes with holding trades in volatile market conditions. Traders who aim for big wins can become emotionally attached to a trade, holding onto it too long, or failing to cut losses when needed. A more disciplined approach with smaller, more achievable targets allows you to remain level-headed and stick to your plan.
Compounding Effect: One of the most powerful forces in trading is compounding. Small gains add up over time, and the more consistently you can hit your target, the greater your returns will be. For example, making a consistent 3-5% gain per trade, even with a moderate win rate, can lead to impressive overall returns as the gains build upon one another. This is where small wins become big—over time, compounding will generate substantial growth in your trading account, without ever needing a huge winner.
More Predictable and Manageable: The reality is that huge gains are unpredictable and infrequent. Relying on them creates an erratic trading approach with more variability in results. On the other hand, targeting smaller, consistent gains helps create more predictable, manageable profits. You know that with each trade, you’re only risking a small percentage of your account, and you know how much you stand to gain. This predictability is a crucial component in successful long-term trading because it creates stability in both your strategy and your mindset.

The Role of Risk Management

Another crucial aspect of making small, consistent gains work in your favor is disciplined risk management. Even with small gain targets, every trader will experience losses. The key is keeping those losses under control and ensuring they don’t wipe out your account. Here’s how disciplined risk management helps:

Position Sizing: Limiting how much of your account you risk on any single trade is essential. For example, by limiting each trade to 1-5% of your account, you ensure that no single losing trade has a major impact on your overall capital. This way, even if you go through a series of losses, your account remains intact and ready for the next opportunity.
Stop Losses: Implementing stop losses is a vital part of any disciplined trading strategy. By setting a stop-loss level, you cap your downside risk and prevent small losses from turning into catastrophic ones. When you’re focusing on small gains, it’s equally important to keep your losses small. A typical risk-to-reward ratio might be risking 1-2% of your account for the chance of gaining 4-5% on a trade.
Cutting Losses Quickly: One of the hardest but most important skills in trading is knowing when to cut losses. Even the best traders experience losses, but what sets them apart is their ability to cut those losses quickly and move on to the next opportunity. If a trade isn’t working, sticking to your predetermined stop-loss prevents emotional trading and keeps you disciplined.

Example: Turning Small Gains into Big Profits

Let’s walk through an example to show how small, consistent gains add up over time.

Assume you have a $100,000 account, and you decide to limit each trade to 5% of your account value, which means you’re trading with $5,000 per trade. You set a target to achieve a 4.28% gain per trade, which was the average 2024 result for 8.5 months.

Over time, you make 191 trades..
Each winning trade gives you a $214 profit, and multiplying that by 191 trades results in a total profit of $40,874.
Even with 94 losing trades, as long as you’ve managed your losses and kept them minimal, the gains from your winning trades will far outweigh the small losses, resulting in substantial overall profit.

This approach to swing trading is focused on slow, steady growth, and it’s this gradual accumulation of small profits that leads to long-term success.

Conclusion: Swing Trading is About Sustainable, Steady Growth

Swing trading, when done with discipline and consistency, is all about sustainable, steady growth. It’s not about chasing the biggest winners or avoiding losses entirely. Instead, it’s about setting realistic goals and allowing small, consistent wins to build your account over time.