Swing Trading vs. Day Trading
If you’ve got an interest in trading stocks, futures, forex or crypto, you might decide to turn to professionals to manage your portfolio. However, not everyone enjoys sitting back and letting someone else take care of things. If you’re an adventurous, hands-on personality, getting into trading yourself can bring you more satisfaction than relying on someone else.
If you want to get involved in the business of trading, there are two great options you can try: Swing trading and day trading.
Swing Trading Basics
Swing trading is a technique where traders try to capture short-term gains trading stock, futures, forex or crypto over some time. This period could be a few days, a few weeks, or even a few months. Some sample ideas used in swing trading can be found here.
The purpose of swing trading is to profit from an anticipated price move. Compared to other trading techniques, a lot of the risk with swing trading comes from potential changes overnight or during the weekend. These changes can cause the instrument price to fluctuate immensely, resulting in the price being at a different level when the market reopens.
The Basics
Swing trading is a high-risk, high-reward technique that doesn’t work for everyone.
Newcomers in the stock or futures market look at using the Swing trading technique as a way to get in and learn how to maneuver. Unlike other trading techniques, which are usually complete by the end of the day, swing trading usually takes several days or weeks to complete.
Due to this extension, traders can typically spend less time watching the market. This attribute makes swing trading a desirable first step for anyone with a full-time job or career wanting to invest in their spare time. It also means a person can take more time to learn trading stocks instead of the typical sharp learning curve other traders might experience.
Often, swing traders will rely on technical analysis, risk/reward analysis, or fundamental analysis to decide whether to trade certain stocks.
Because swing traders have open trades in their portfolio during closed market times, they can set stop-losses. Stop-losses will help prevent a trader from losing too much money in an investment, so a swing trader may have more probability of gaining funds and a lower risk of losing money.
The purpose of swing trading is to profit from an anticipated price move. Compared to other trading techniques, a lot of the risk with swing trading comes from potential changes overnight or during the weekend. These changes can cause the instrument price to fluctuate immensely, resulting in the price being at a different level when the market reopens.
The Basics
Swing trading is a high-risk, high-reward technique that doesn’t work for everyone.
Newcomers in the stock or futures market look at using the Swing trading technique as a way to get in and learn how to maneuver. Unlike other trading techniques, which are usually complete by the end of the day, swing trading usually takes several days or weeks to complete.
Due to this extension, traders can typically spend less time watching the market. This attribute makes swing trading a desirable first step for anyone with a full-time job or career wanting to invest in their spare time. It also means a person can take more time to learn trading stocks instead of the typical sharp learning curve other traders might experience.
Often, swing traders will rely on technical analysis, risk/reward analysis, or fundamental analysis to decide whether to trade certain stocks.
Because swing traders have open trades in their portfolio during closed market times, they can set stop-losses. Stop-losses will help prevent a trader from losing too much money in an investment, so a swing trader may have more probability of gaining funds and a lower risk of losing money.
Day Trading Basics
Day trading is a technique for anyone who enjoys executing a large amount of short and long trades to capitalize on market price. Day traders take advantage of supply and demand and typically hold their position for a period of seconds or minutes, and close out before the end of the day.
Though it is another high-risk, high-reward kind of tactic, it differs from swing trading as it omits the risk of overnight price changes.
The Basics
Day trading involves multiple trades throughout the day based on the technical analysis of the market. In most cases, day traders will make a living off of trading stocks and assets by making small profits on several trades and capping losses.
The day trader usually does not have any open stocks or securities overnight because they do not want to risk price fluctuation. Successful day traders have extreme discipline and are decisive in their actions.
Because it can be difficult to learn these skills on the fly, most day traders put in a lot of time and effort into trading and commit to it as their full occupation. However, due to the risk, most newcomers suffer significant financial losses when they start.
Significant financial loss can take a new trader out of the market entirely. This risk makes it crucial for new traders to learn about the market beforehand to gain a good understanding of trading basics.
Many full-time day traders can also spend millions of dollars to gain an advantage. These kinds of traders can make it difficult for a new day trader to get a foothold in the market. Spending significant time on a trading platform, finding live price quotes, and continual investing can help you compensate against any other trader’s advantage.
Day trading is the perfect occupation for anyone that loves the thrill of risk. It’s also ideal for anyone who values independence and flexibility in their job.
Though it is another high-risk, high-reward kind of tactic, it differs from swing trading as it omits the risk of overnight price changes.
The Basics
Day trading involves multiple trades throughout the day based on the technical analysis of the market. In most cases, day traders will make a living off of trading stocks and assets by making small profits on several trades and capping losses.
The day trader usually does not have any open stocks or securities overnight because they do not want to risk price fluctuation. Successful day traders have extreme discipline and are decisive in their actions.
Because it can be difficult to learn these skills on the fly, most day traders put in a lot of time and effort into trading and commit to it as their full occupation. However, due to the risk, most newcomers suffer significant financial losses when they start.
Significant financial loss can take a new trader out of the market entirely. This risk makes it crucial for new traders to learn about the market beforehand to gain a good understanding of trading basics.
Many full-time day traders can also spend millions of dollars to gain an advantage. These kinds of traders can make it difficult for a new day trader to get a foothold in the market. Spending significant time on a trading platform, finding live price quotes, and continual investing can help you compensate against any other trader’s advantage.
Day trading is the perfect occupation for anyone that loves the thrill of risk. It’s also ideal for anyone who values independence and flexibility in their job.
Comparing Swing Trading And Day Trading
Though both swing traders and day traders operate primarily on the Forex (foreign exchange), futures, crypto and stock markets, their methods differ.
The biggest difference between a Swing trader and a Day trader is the Swing trader will not likely make trading his or her full-time income. Swing trading is pretty much fair game to anyone who has basic knowledge and investment capital, whereas day trading requires much more commitment, understanding, and time.
Another vital difference is how long a trader holds stock or security before trading it. Typically, day traders make multiple trades before the day’s end when the market closes. By comparison, Swing traders will hold on to their stock for much longer.
This difference means the trader in question will have a different approach depending on which method they use. For instance, for swing trading, a trader might not spend as much time or energy to trade. They might only engage a few hours a day or week. In comparison, a day trader has much more engagement with their market and often makes trading their full-time job.
Swing traders are also much more likely to use analysis or algorithms to help them decide which stocks to invest in. In this way, swing trading can sometimes incorporate other trading techniques such as Algo trading.
Although day traders can also blend techniques to help reach their goals, they will also spend more time learning the ins and outs of the market, growing their knowledge base so that they don’t always have to rely on analytical tools to assess risk.
Swing Trading Pros and Cons
The swing trading technique comes with an equal possibility of risk or reward. Knowing the main points of each can help you decide whether it’s a worthwhile method.
Pros
● Traders require less market knowledge (debatable!)
● Traders don’t need to invest as much time
● Increases potential for short-term profit
● Traders can rely on analytics or algorithms
Cons
● Stock prices can fluctuate in closed market periods
● Long-term trends sometimes harder to recognize or establish themselves
● Risk of market reversal can result in financial loss
Swing trading is optimal for anyone wanting to learn the basics of trading without fully committing. In comparison with other trading techniques, the risks of swing trading don’t necessarily outweigh the pros, although at any time financial loss could be devastating.
Day Trading Pros and Cons
Just as with swing trading, knowing the pros and cons of day trading can help you understand the risk and reward factors.
Pros
● Provides an independent, flexible, and thrilling job
● Skilled professionals can make a good profit
● More trades mean more potential for gains
● Completing your trades in a day means no risk of overnight price changes
Cons
● Requires intensive knowledge, time, and skill for success
● More people lose money than gain it
● Often difficult to compete against traders with financial advantages
Though it may seem as though the cons outweigh the pros for day trading, it comes down to your personality and what you’re willing to endure. Often, new day traders must undergo an intense learning curve where they could lose a substantial amount of money before they manage to make a profit.
However, those who can stick it out tend to become very successful traders.
Risks In Swing Trading Or Day Trading
Swing trading carries the risk of market reversal, while day trading risks scams and other unforeseen pitfalls. Both risk huge financial losses.
Because of the potential of price changes stock can undergo during overnights or weekends, swing traders can lose money during a closed market. Sometimes this loss can lead to significant financial devastation. However, as this is the main risk with swing trading, any capable trader using technical analysis tools can find themselves in good financial standing despite the risk.
In comparison, day trading carries a lot more risk, although it doesn’t allow for the risk of fluctuating prices.
Day trading deals with such risks as:
● High-stress situations
● Huge financial loss
● Needing to borrow large amounts of money
● Loss of objectivity resulting in mounting desperation
● Scams guaranteeing a high-profit return
Again, both techniques are a high-risk, high-reward kind of method. The respective futures of either technique have no guarantees of success. A new trader will have to risk some amount of money to make a profit.
And though day trading has much more risk than swing trading, day trading needs much more knowledge, skill, and patience than swing trading does. In this way, the risk matches the time and energy needed for success.
Because of the potential of price changes stock can undergo during overnights or weekends, swing traders can lose money during a closed market. Sometimes this loss can lead to significant financial devastation. However, as this is the main risk with swing trading, any capable trader using technical analysis tools can find themselves in good financial standing despite the risk.
In comparison, day trading carries a lot more risk, although it doesn’t allow for the risk of fluctuating prices.
Day trading deals with such risks as:
● High-stress situations
● Huge financial loss
● Needing to borrow large amounts of money
● Loss of objectivity resulting in mounting desperation
● Scams guaranteeing a high-profit return
Again, both techniques are a high-risk, high-reward kind of method. The respective futures of either technique have no guarantees of success. A new trader will have to risk some amount of money to make a profit.
And though day trading has much more risk than swing trading, day trading needs much more knowledge, skill, and patience than swing trading does. In this way, the risk matches the time and energy needed for success.
Final Thoughts
There are several techniques you can consider when entering the stock market. Newcomers often seek out swing or day trading to learn more about the market and how to trade effectively. While both techniques have their pros and cons, each is a worthwhile consideration.
Swing trading is a great way to get into trading, especially if you don’t have considerable funds or a lot of spare time. Day trading isn’t for the faint of heart, but it’s one of the more fundamental techniques that can help you learn extensively about the stock market and how it works.
Swing trading is a great way to get into trading, especially if you don’t have considerable funds or a lot of spare time. Day trading isn’t for the faint of heart, but it’s one of the more fundamental techniques that can help you learn extensively about the stock market and how it works.
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About The Author: Kevin Davey is an award winning private futures, forex and commodities trader. He has been trading for over 25 years.Three consecutive years, Kevin achieved over 100% annual returns in a real time, real money, year long trading contest, finishing in first or second place each of those years.
Kevin is the author of 5 highly acclaimed books, including "Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading" (Wiley 2014). Kevin provides a wealth of trading information at his website: https://www.kjtradingsystems.com
Copyright, Kevin Davey and KJ Trading Systems. All Rights Reserved. Reprint of above article is permitted, as long as the About The Author information is included.
Kevin is the author of 5 highly acclaimed books, including "Building Algorithmic Trading Systems: A Trader's Journey From Data Mining to Monte Carlo Simulation to Live Trading" (Wiley 2014). Kevin provides a wealth of trading information at his website: https://www.kjtradingsystems.com
Copyright, Kevin Davey and KJ Trading Systems. All Rights Reserved. Reprint of above article is permitted, as long as the About The Author information is included.