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Swing Trading and Day Trading: Explanation and Comparison

The first thing you need to decide to become a successful trader is what timeframe you will trade on. This is something you should approach with responsibility because the trading period you choose can seriously affect your success in trading.

Most often, you would choose between two options: day trading and swing trading. In both cases, traders try to make money on short-term price fluctuations, unlike investors who use long-term strategies for their trading. Other styles (for example, scalping) do exist, but the latter are suitable for experienced traders who know various trading strategies and the market itself. So, in this article, we will review and compare swing trading and day trading.

Day Trading for Beginners

Day trading, as you might guess from itself, is intraday trading. These are several or even dozens of transactions that are opened and closed within one trading session. Most often, a transaction decision is made based on graphical and technical analyzes. Day trading stocks, the goal of the trader is to earn a living by earning small profits from many transactions in the stock market, currency, and futures. 

On the other hand, non-profitable transactions must be closed quickly, so the loss from them does not exceed the profit received from profitable trades. The main feature of day trading online is that, as a rule, traders never transfer their position overnight – all transactions are closed until the end of the current trading session. Let’s look at all the advantages of day trading:

  • Big profits potential. The potential for speculative profit is most attractive. However, very few people have the qualities, such as determination, discipline, and hard work to learn day trading strategies, necessary for such success. 
  • Freedom. Day traders usually work independently. A day-trader forms his own work schedule, can be distracted from work, and chooses a working pace comfortable for him. 
  • No education required. To begin day trading, you do not have to be a graduate of a prestigious university. Although there are no formal education requirements, technical analysis, and stock trading strategies courses, and specialized software may come in handy.

Now consider the shortcomings of day trading:

  • Risk of loss. Based on statistics, most day traders incur financial losses in the first few months of trading, and some of them never make a profit. Although the SEC is warning that traders should trade with and risk only personal funds, in practice, many day traders lose money they borrow from brokers (margin trading) and their relatives and friends.
  • High initial and ongoing costs. A day trader has to constantly compete with stock market professionals who invest millions of dollars to gain a competitive advantage, high-frequency robots, etc. In such a competitive environment, the trader has no choice but to spend significant funds on the purchase of analytical software and high-tech equipment. There are also monthly fees and broker’s commissions.
  • Lack of regular income. To learn how to trade and actually start earning money, you will most likely have to leave a permanent job with a stable salary and immerse yourself in day trading. Moreover, all future income will depend solely on your skill and ability to conduct profitable trading. 
  • High stress and risk of burnout. Day trading is a very stressful task because it requires continuous monitoring of numerous charts to find interesting trading opportunities and an instant reaction to using them.

Swing Trading for Beginners

Another style worthy of attention is swing trading. What is swing trading? It allows you to make a profit on the volatility of the stock prices. Instead of focusing on a specific time period, swing traders determine the direction of price movement, open a position, and hold it for the entire period of growth/fall in the price. 

Unlike day trading, when swing trading stocks, you to keep trades open for several days or even weeks. It all depends on whether the chosen direction is somewhat promising. The features of swing trading include:

  • Less time spent. Traders use small time frames – most often four hours. Many works on an hourly time frame or use even shorter time frames.
  • It does not require constant attention from a market participant. Everyone who has certain knowledge (e.g., took online swing trading courses) and free investment capital can try swing trading. If you work on a 4-hour timeframe, just look at the chart every four hours. Therefore, you can combine the main work and trading. 
  • No large investment required. You can do swing trading using a regular computer with one monitor and using the common set of tools. There is no need to buy high-tech equipment and constantly update it.
  • Potential for big money. Since time frames are longer in swing trading than in day trading, there are sometimes bigger price movements too. This means that a trader can potentially make more money than if he were catching small movements when day trading.
  • By setting a stop loss, the trader’s hands are substantially untied for other activities. He does not need to constantly monitor what is happening with his transaction, as is the case with day trading, although there is a risk that the position will be closed at a worse price due to possible slippage.

Let’s also look at the disadvantages of this trading style.

  • Higher margin requirements. Since in swing trading, positions are often carried overnight, the margin requirements for such transactions are usually higher. The maximum leverage that a trader receives rarely exceeds his own capital by more than two times. If we compare with the marginal opportunities of day trading, then there you can get a capital that is several times bigger than your own.
  • Loss risk. As with any other trading approach, swing trading can also cause significant losses. The longer a trader is in a position, the more the price can move in an unfavorable direction.
  • Involves instruments with greater volatility. During the bidding process, the trader uses different swing trading strategies, including focusing on support and resistance levels with the mandatory financial analysis. Without taking into account fundamental factors, one cannot count on big profits. 

Conclusion

It is quite difficult to point out the best trading timeframe because each of these trading approaches has its advantages and its disadvantages. It cannot be said that one of them is better than the other – you must determine for yourself what is best for you based on your skills and lifestyle.

Each trader is different, and each person has his own comfortable conditions in which it is convenient to trade. Also, you do not have to choose just one strategy for yourself. There is always an opportunity to combine them and choose the most profitable path at the moment.