Day Trading vs Swing Trading. Which Strategy is better?

Day trading and swing trading are popular methods of trading in the financial market. The two are embraced by traders across all asset classes like forex, stocks, exchange-traded funds, and commodities.

Although some characteristics and strategies are similar, the two types of traders also have some substantial differences. In this article, we will explain these differences between the two approaches.

» What type of Trader are you?«

Page Contents

Swing trading definition

Swing trading is a trading strategy that involves buying or shorting financial assets and holding the positions for a few days. As the name suggests, swing traders look for opportunities that could last several days and go all-in.

This strategy is best for people who can stomach leaving their trades open overnight.

Day trading definition

Day trading is a type of trading where your goal is to have all your trades closed by the end of the day. The strategy has become popular among retail traders during the Wall Street Bets craze that saw shares of many companies like AMC and GameStop surge.

There are several approaches to day trading. There are people who use the scalping approach where they open trades and close them within a few minutes. Their goal is to make small profits over many times over. For example, you can buy AMC and sell it with a $5 profit and then short GameStop and exit with a $10 profit. If you repeat this several times per day, your returns will keep rising.

There are other day traders who rely on bots or expert advisors. In this case, they have put in place bots that will scan the market, find opportunities, and implement trades. This approach is usually useful to experienced traders.

»How to Develop Algorithmic Trading Strategies«

Swing Trading - 3 Tips you should know

The Degree of Difficulty

The costs of day trading are extremely high. It will even be difficult to take a few minutes to go to the bathroom while trading is going on. You will have to analyze charts and make fast decisions before you can begin to make one trade (you can use multi-time analysis).

Some people can make trades for several hours each day, but We know that sitting in front of a screen all day is very hard to do.

Swing trading techniques is much easier! You have to keep an eye on your stocks to know what is going on, but you can be more casual. Swing trading means that you will plan when you are going to enter a trade and when you are going to exit, but you aren’t going to be making as many trades.

Try reading some swing trading books to get a better understanding.

»Learn When to Enter and Exit While Trading«

The Amount You Can Expect to Earn

Swing trading doesn't take a long time to complete a trade in a day trading strategy. You can trade with one-, three-, five- or 15-minute charts.

Because this is a course way of trading, you must be able to alter the amount that you expect to earn with each trade. The fact is that making money from this type of trading means that you must earn more than a few pennies on each trade.

You have the potential to make more money with swing trading strategy. You have the option of aiming for a 20 percent gain or even more. Swing trading allows you more time, and that’s why there is a possibility of earning more money.

For example, if you have a set profit target, you can allow your profits to run because you have a longer holding period.

The Amount of Money Required to Start Swing Trading

The cash to expenses ratio needed in a full-time day trader’s account is 50:1. Those who have an extra source of income can bend this rule a little. If your monthly expenses are equal to $3,000 a month, you will be required to have $150,000 in your account before you can begin trading.

If you were thinking that this number seems high, you would be right! The point is to make sure that you can afford to trade without losing everything. You should also be careful with which swing trading software and system you will use.

Swing trading can be done in your spare time while you keep your job, so you can decide how much money you wish to risk. If you want to quit your job, then your cash to expenses ratio must be 100:1. This number is higher because it can take as long as a month to complete, so you won’t have a source of income during that time.

With this higher ratio, there is only a risk of losing one percent of your capital every month if your trades last longer than you expected.

One of the best strategies → Swing Trading Using ETFs.

Swing Trader vs Day Trader Career

Now that we have analyzed the two trading styles in detail (focusing a little more on swing) we can get a clearer idea of which one best suits our needs. But we know you want to know our opinion on a common question: which is better between being a day trader vs being a swing trader?

There is no correct answer to this question since many traders have succeeded using the strategies.

Some of the top pros of swing trading are:

Capturing big moves – You can capture big moves such as when a stock rallies from $10 to $15.
Time commitment – You don’t need to spend a lot of time on your computer trading. You can just set your trades and go to do your other activities.
Less expensive – If you use a broker that charges commissions, swing trading is a less expensive strategy.

The only major risk of swing trading is:

Overnight risks – There is a possibility of encountering overnight risks such as when there is a major event.

Pros and cons of day trading

Some of the main pros of day trading are:

No overnight risks – Since all trades must be closed by end of business, there are no overnight risks.
Interesting – Being a day trader is interesting because of the many market opportunities that emerge.
No overnight fees – Some brokers charge overnight fees known as swaps. Day trading can help you avoid that.

Cons of day trading are that it is a bit riskier since, at times, it involves overtrading. It is also inappropriate for people with full-time jobs. Further, it can be expensive if your broker takes commissions.

Final thoughts

Swing trading and day trading are two popular strategies you can use to make money online. We have looked at their differences and some of the pros and cons of using the two approaches.