Swing Trading VS Day Trading: Which Is Better?
The two most common types of active trading are swing trading and day trading.
Both seek to profit from short-term stock movements (versus long-term investments).
Swing trading and day trading may seem like similar practices, but the major difference between the two is the time exposure in the market.
Day traders are in and out of trades within minutes or hours. Swing trading is generally over days or weeks.
Let’s have a closer look at the two types of trading.
Key Traits Of Swing Trading
Swing traders generally hold their positions for few days/weeks, and thus expose themselves to the risk of gaps.
Of course, there is also the possibility that the gaps may work to their advantage.
Swing trading involves fewer trades and thus lower transaction costs.
Furthermore, it does not require the trader to be constantly monitoring his open positions.
Alerts are a great help when critical price points are reached.
This allows swing traders to diversify their investments and keep a level head while investing.
Swing trading involving identifying setup end-of-day, so traders can have greater flexibility in balancing trading and their day job.
Because of the longer time exposure in the market, swing traders often need a higher margin.
Key Traits Of Day Trading
Almost 100% of the time, day traders do not hold onto positions overnight.
That way, they avoid the risk of big price movements as a result of news announcements coming in after the stock market closes.
However, day traders have to compete with high-frequency traders, algorithm traders, hedge funds and market makers.
In this environment, a day trader has to invest heavily on a trading platform, charting software, tool, etc. in order to level the playing field.
Because of the frequency of trading, day traders usually end up paying higher transaction costs.
As the trades are confined within the day, day traders use large leveraged positions to increase percentage gains to offset costs.
Day trading also requires focus and attention on numerous positions and constantly looking for new potential opportunities throughout the day to replace exited positions.
Day traders spend a lot more time staring at the screen than swing traders.
Day trading is a much faster form of trading and the emotional demand is also much greater.
Beginner traders are generally not suited for this type of trading.
Day Trading VS Swing Trading: At A Glance
| DAY TRADING | SWING TRADING |
|---|---|
| Profits are likely to be much smaller but more frequent | Profits are larger but less frequent |
| Trades are not exposed to overnight risk | Trades are exposed to overnight risk |
| Due to limited time exposure, large leverage or position size is necessary to achieve meaning profit | Only modest leverage is required since trades have more time to perform |
| “Compelled” to close positions end-of-day, thus minimising potential loss | Traders may lull into complacency since there is no time impose on a trade resulting in huge loss |
| Emotionally and psychologically more demanding | Less demanding emotionally and psychologically |
| In view of the demand, day trading is more difficult to master | Easier to master |
| Not suitable for beginners | Suitable for beginners |
| Incur more fees due to the number of transaction | Transaction fee is lower due to fewer trades |
Which Is Better?
Between swing trading and day trading, which strategy is better depends a lot on your situation.
For full-time jobholders, day trading is out of the question.
If you’re fairly new to trading or have a lower risk appetite, then swing trading should be more suitable for you.
But be sure not to commit the common swing trading mistakes.
Minimise your losses and stick to a proven process and strategy.
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