When it comes to trading, there are two main approaches – swing trading and day trading. Both have their merits, but which is better?
You’ve probably heard of both terms before. But what exactly do they mean? And how can you decide if one approach works better than the other for your particular situation?
To help answer these questions and more we created this guide on swing trading vs day trading that will take you through everything you need to know about each type of trade so that you can make an informed decision as to which best fits your needs.
Swing Trading
A swing trade is taken when an asset or security moves within a certain range, known as its “swing.” Once the price reaches either end of this range, it is expected to return back towards the middle. The swing will also remain in place until volatility increases enough for it to be broken by new momentum.
Traders that employ swing trading utilize technical analysis to determine when a stock is going to reach either end of its range, at which time they will enter a long or short position accordingly. The objective is to capture as much profit as possible from the resulting movement.
Typically, swing trades tend to last for between one day and multiple weeks. However, if volatility begins to pick up, it may only take a matter of hours to complete.
Day Trading
Unlike swing trading, day trading is primarily focused on capitalizing on short-term price changes. These may occur at any time during the day and are not expected to last for more than 24 hours (unless there is major news or events influencing the security). Because of this, day traders attempt to enter and exit the market hundreds of times each day.
Day traders typically need access to a computer that is hooked up to an online trading platform, which allows them to monitor their holdings throughout the day while changing positions rapidly in response to market conditions. While volatile movements can lead to fast profits, they also carry with them a heightened risk of significant losses.
Crypto traders that employ day trading need to understand the concept of “scalping” – where traders enter and exit trades rapidly, usually within minutes or even seconds. They do so in order to capture small gains on hundreds of different securities over the course of each day. While this can be time consuming, it also holds the potential for very high returns.
In order to make money day trading, traders typically rely on technical analysis to identify trending securities and employ a momentum strategy, where they sell as soon as a security’s price begins to drop and buy as soon as it starts to rise again. These short-term trades are the focus of day trading.
Day Trading vs Swing Trading
Now that we’ve provided a brief overview of both swing trading and day trading, let’s compare the two based on a few different factors.
- Swing trading is better for people who don’t have time to pay attention to their investments everyday
- Day trading is good for more experienced traders with larger amounts of money because it has a higher risk than swing trading
- Swing trading takes advantage of medium term fluctuations, while day trading
Risk Management in Swing Trading vs Day Trading
While swing trading and day trading have different risk profiles, when it comes to managing overall risk in your portfolio both types of trades can be mitigated. The most effective way for traders to manage their risk levels is by implementing a stop loss order, which tells the broker to sell an asset at a certain price. The goal of these types of orders is to limit losses by exiting trades that begin to go against them before they can spiral out of control.
Summary
While swing trading and day trading share some of the same concepts, they also have several differences that distinguish them from each other. While day trading focuses on short-term fluctuations and scalping, swing trading relies on larger price moves in a medium-term timeframe. Swing traders may enter and exit positions more slowly than day traders due to the nature of their strategy while day traders’ attention must remain divided throughout the day as they track price changes.
