Understanding the Differences Between Day Trading & Swing Trading

One of the most interesting things about trading is that every successful trader has to find their own unique trading style. There is no “one size fits all” for profitable trading. The best traders are individuals that are consistently exploring new strategies, backtesting, and tweaking their trading plans to match their own personal style. One of the most important variables when it comes to trading is the timeframe in which a trader opts to trade. You are likely already familiar with the terms day trading and swing trading, but what are the real differences between the two? The majority of active traders normally classify themselves in one of these groups, so let’s learn a little bit about the major distinctions between the two.

Day Trading

Active trading is all about making money based on short-term price movements. The duration of each trade is ultimately what characterizes a day trader or a swing trader. Day traders are active traders that enter and exit a trade within the same trading day. They often rely on technical analysis and complex charting systems to capitalize on price movements of a security during the trading day. The important thing to note about day traders is that they normally do not keep their trading positions open overnight.

Day trading is attractive to a lot of people because of the potential for huge returns. Mastering the art of day trading can provide a full-time income and then some. However, the road to profitability for day traders is a long and difficult one. Successful day traders must be disciplined, hungry for knowledge, and able to control their emotions at all times. Many aspiring day traders burn themselves out due to large financial losses and the amount of screen watching required to actually achieve profitable trades. The degree of difficulty for day trading is huge, as it is much more challenging to become a consistently profitable day trader than a profitable swing trader or long-term investor.

Swing Trading

In contrast to day traders, swing traders try to identify price swings in securities that will take place in the coming days, weeks, and sometimes even months. Instead of entering and exiting a trade within the span of a single trading session, swing traders will keep their positions open for a few days or weeks. Swing trades take time to develop and can eventually result in much bigger profits than a single day trade can.

One of the big advantages of swing trading is that the degree of difficulty is lower than day trading. Instead of staying focused on watching the market at all times, swing traders can enter a position, place a stop-loss order, and move on to other tasks in their lives. Swing trading can also present traders with substantial losses, but the general consensus is that becoming a profitable swing trader is much easier than becoming a profitable day trader. It’s also important to mention that many professional day traders start their trading careers by learning swing trading first.

Which is the Better Strategy?

Now that we understand a little bit more about both day trading and swing trading, you might be wondering which strategy is actually better? The truth is that both strategies have their own unique sets of advantages and disadvantages. It’s up to you to pursue a strategy based on your level of trading experience, financial goals, risk tolerance, and more. Ask yourself which strategy is best suited for your own unique goals and personality.

Understand that managing stress and extensive technical analysis are both essential for becoming a successful day trader. If you are you are able to control your emotions and are willing to dedicate countless hours watching the market and learning technical analysis, day trading might be the right option for you. However, please remember that day trading is not recommended for beginners. Understand that day traders are competing against professional traders, market makers, algorithms, and institutional investors. If you are willing to accept the challenge, perhaps start with a paper trading account.

On the other hand, if you want to pursue making money on short term price fluctuations of securities without having to stay glued to your monitor, swing trading is a good option to explore. It can provide you with the potential for huge gains while helping you build a great trading skill set. Also, keep in mind that you don’t have to limit yourself to a single strategy. There are plenty of day traders out there that also use swing trading techniques and vice-versa.