Swing Trading vs Day Trading [Differences, Pros & Cons]

When it comes to trading, there are two main types: swing trading and day trading. As both have their own advantages and disadvantages, it can be difficult to decide which one is right for you.

In this article, we’ll discuss the key differences between swing trading vs day trading so you can make an informed decision about which type of trader you want to be!

Swing Trading vs Day Trading: An Overview

The key distinction between swing trading and day trading lies in how much money, time, and energy traders are willing to put in. Each individual’s psychological profile and investment goals also play a significant role in the choice of their trading strategy.

Let’s get into more detail about what represents each trading style:

What Is Day Trading?

Day trading is a type of trading where positions are opened and closed within the same day. This strategy can be used in different markets, including forex, stocks, futures, and options. The difference between day trading and swing trading is that day traders typically don’t hold onto their positions overnight, as they believe the market can change rapidly and they don’t want to risk being caught in a losing position.

Day traders are usually full-time traders who closely follow the market for profit possibilities, and they use technical analysis and software for automatic updates. This type of trading has a greater potential for making money in small trading accounts, at least in percentage terms. Day traders don’t seek big gains from a single trade, prioritizing multiple transactions to meet their profit objective instead.

With both swing vs day trading, traders have the same goal—to make money trading stocks, commodities, or currencies by making modest profits on many transactions and limiting losses on unprofitable ones. Because of how frequently prices change during the day, day traders often prefer market open and close times, which is when price changes tend to be the most volatile.

Although day trading can be risky, it can also be a profitable strategy if you know what you’re doing. One of the key advantages of day vs swing trading is that as a day trader, you have the potential to make quick profit—but this is also one of the risks, as you could lose money just as quickly.

Advantages of Day Trading

Here are some of the advantages of being a day trader:

• Make Money Quickly

Day trading is a good way to invest and make money in a short amount of time. Day traders capitalize on the fact that the market can move quickly and try to take advantage of these short-term movements.

• Less Capital Required

Because you’re only holding onto your position for a short period of time, you don’t need as much money, although there are some rules regarding having less than 25k on your account. Regardless, many think that when it comes to day trading vs swing trading, the former is still a more accessible strategy.

• Work Independently

Day traders have the opportunity to work independently. Instead of reporting to a firm or following a company’s trading directions, any investor with enough personal capital can trade when they want, working as flexible a schedule as global markets allow.

• No Overnight Risk

Another advantage of day trading is that you don’t have to worry about overnight risk, since you’re closing your positions before the end of the day.

• No Degree Requirements

Many jobs in finance require a specific degree from the appropriate institution. However, another difference between swing trading and day trading is that you don’t need a particular university education for the latter (although courses in technical analysis and computerized trading may be helpful).

Disadvantages of Day Trading

Although day trading has a number of advantages, traders should be aware of this strategy’s disadvantages, which include:

• Pay More Commission

Since day traders open and close more positions, they have to pay more commissions. Because they conduct so many transactions, they may also have to pay for features like live price quotes, which can become expensive over time.

• Spend Extra Time

Because swing and day trading have different dedication requirements, with the day trader having to closely monitor the changes in the market, you’ll need to put in more of your free time to be successful. This can be difficult if you have a full-time job or another commitment.

• Make Small Profits:

One of the key disadvantages of day trading is that you’ll only ever make small profits, as you won’t be able to take advantage of long-term trends due to only holding your positions for a short period of time.

What Is Swing Trading?

Swing trading is a type of trading where positions are held for more than one day, but usually no longer than a few weeks. Swing traders try to take advantage of the “swings” in the market—that is, the highs and lows that occur over time—hoping to make money by taking advantage of bigger price fluctuations.

What is different between swing trading vs day trading is that the first can be a less risky strategy, as you’re giving yourself more time to make an informed decision about your position. However, it can also be more difficult to make a profit with swing trading, as the market may not always move in the direction you want it to.

Swing traders usually use multi-day charts when analyzing the market—examples of some chart types popular among swing traders include moving average crossovers, the head & shoulder pattern, the cup & handle pattern, flags, and triangles. Although the difference between swing and day trading is that swing trading might be slower, it’s also often considered less dangerous.

Advantages of Swing Trading

Take a look at the key advantages of swing trading:

• Spend Less Time

The primary advantage that makes the swing trading method so popular is that it allows those who have full-time jobs or can’t trade full-time to still participate in the market and profit.

• Make More Profit

Instead of trying to make a profit on every single trade, swing traders are more focused on making bigger profits over time by being patient and waiting for the right opportunity to come along.

• Experience Less Stress

What is good about swing trading is that it’s less stressful than day trading, as you don’t have to watch the market all day long—you can go about your daily life and only check your charts once or twice a day.

Disadvantages of Swing Trading

Here are some of the swing traders’ frequent concerns:

• Overnight Risk

This is the risk that the price of the security will move against the trader’s position while they’re not actively monitoring it. To help manage this risk, swing traders often use stop-loss orders, which automatically sell a security if it falls below a certain price.

• Higher Margin Requirements

The swing strategy generally requires higher margin requirements vs day trading due to the increased risk involved in holding positions overnight. This means swing traders need to have more capital available to make trades.

• Potential for Gap Ups or Gap Downs

Another thing to be aware of as a swing trader is the potential for gap ups or gap downs at the opening of the market each day. This can eat into profits or amplify losses, so it’s important to keep in mind before making any trades.

Day Trading vs Swing Trading: Key Differences

Although both swing and day trading can net you gains, as you’ve already seen from both strategies overview, there are some key differences between the two.

Let’s take a closer look at the most notable ones:

Required Effort

Swing trading generally requires less effort than day trading, as you don’t have to be glued to your screen all day long or regularly trade during specific time frames. However, this doesn’t mean swing trading is easy—it still requires a lot of research and planning to be successful.

Required Startup Capital

As mentioned above, swing trading generally requires more capital than day trading due to the higher margin requirements and increased risk involved.

Trading Frequency

As we said, the difference between day trading and swing trading is that day traders open and close multiple positions within a single day, while swing traders take trades that last for days, weeks, or even months. So, if you don’t have the time to commit to multiple trades per day, swing trading may be a better option for you.

Profit Expectations

Another key difference between day and swing trading are profit expectations. Swing traders typically aim to make small profits on each trade, while day traders often seek to take advantage of a larger price movement. This means swing trading generally requires more capital than day trading, as the higher margin requirements can eat into profits.

Time Span

Another key difference between swing trading and day trading is the amount of time required to do each. Swing trading can be done on a part-time basis, while day trading generally requires a full-time commitment.

• Day traders typically trade for a minimum of two hours each day. If you factor in the time to prepare plus chart/trading review, that amounts to spending at least three or four hours in total at the computer.
• Swing trading might require considerably less active time. If you’re swing trading on a daily chart, for example, you may discover new trades and modify existing orders in around 45 minutes each night. These operations may not even be necessary on a daily basis.

Trading Style

What is day trading nearly impossible to do without is the latest software for day trading. Prices can change before you’ve had time to make a trade, so automation is vital if you want day trading to be profitable. When starting out, you’ll need an account with a broker as well as access to a computer system and software that will give you all the information needed.

On the other hand, traders who employ different swing trading strategies have longer time horizons, allowing them to place positions and trade online using their brokerage accounts. They’re under less of a time constraint and don’t need to respond immediately to changes in selling price.

Key Takeaways

Swing Trading vs Day Trading – Which Is More Profitable?

Although the large number of transactions means the difference between swing and day trading is that you have a greater potential for profit with swing trading, that doesn’t imply a day trader will always make more money than a swing trader. To achieve profit, day traders must have strong decision-making abilities to quickly open or close trades to maximize profit or limit losses when the market turns.

Swing trading allows traders to see fewer but larger profits—the longer a position stays open, the more likely it is the market will move further away from its original opening price. If it moves in the direction the trader predicted, they’ll make a profit, and if not, they’ll experience a loss instead.

It’s hard to say definitively which one between day vs swing trading strategy is more profitable, since it depends on a number of different factors, such as the trader’s experience and skill level, market volatility at any given time, how much time the trader is willing to dedicate to trading, and whether there are any major news events that could affect an underlying market suddenly.

Conclusion

So, which is better—swing trading or day trading? It really depends on your personality and goals. If you’re patient and want to capture bigger moves on the market, swing trading may be right for you. However, if you prefer being more active and catching short-term opportunities, day trading may suit you better.

Whichever path you choose between day trading and swing trading, make sure to consider all the risks before making any trades.