Updated August 2, 2023
Difference Between Day Trading vs Swing Trading
Trading is a complex task requiring continuous effort to understand and design a trading system. Trading based on security holding can be divided into two broad categories, day trading and swing trading. The ultimate goal of trading is generating profit. Now let’s see what the difference is between Day Trading vs Swing Trading.
What is Day Trading?
Day trading is buying and selling any security in a single trading day. For example, buying stock in the morning and selling the same stock in the afternoon. Day trading can be done in any marketplace, but it is common in the stock and Foreign Exchange (Forex) markets. It is also called intraday trading.
Generally, day trading is a highly skilled job, and it is well-funded as well. Day traders can leverage amounts for short-term trading to capitalize on any small price change. Day trading is done in highly liquid stocks and currencies. Day trading involves making multiple trades daily. Even though every trader has his strategy, generally, pivot level, moving average, and trend lines are used for taking buy or short calls.
Characteristics of Day Traders
- Knowledge and Experience in the Marketplace
- Sufficient Capital
- A Strategy
Day Trading Pros
- Potential to make substantial profits.
- Being your boss.
- Never a dull moment.
- Expensive education is not required.
- Self-employment benefits
Day Trading Cons
- Risk of substantial losses
- Significant start-up and ongoing costs
- No consistent pay
- High stress and risk of burnout
What is Swing Trading?
Swing trading aims to identify and capture the trend for gain. Unlike day trading, swing trading is done overnight or holds for several weeks. Swing trading uses technical analysis of the stocks for short-term price movement prediction. Some traders also use intrinsic value or fundamentals of the stocks in addition to technical analysis.
Swing trading carries the extra risk of holding security overnight or for more than a day.
Swing traders generally look at multi-day charts. Some charts generally used by swing traders are moving average crossovers, head & shoulder patterns, cup & handle patterns, flags, and triangles.
A Candlestick chart is a commonly used chart pattern by swing traders. It is most widely used in the industry.
Swing trading can be done with the help of derivatives and futures also. But generally, it is referred to as future and option trading. Future and options trading is risky, and it needs more skill sets than swing trading in a stock market, foreign exchange market (forex), or commodity market.
Swing trading is also called momentum trading.
Pros of Swing Trading
- It does not have to be a full-time job
- The potential for significant profits
- Constant monitoring is not required
- Less stress and risk of burnout
- Expensive investment is not required
Cons of Swing Trading
- Higher margin requirements
- Risk of substantial losses
Even though swing traders flow with the ongoing trend in security, some of the traders enter into contrarian trading or counter trading to gain by going against the trend.
Head To Head Comparison Between Day Trading vs Swing Trading (Infographics)
Below is the top 6 difference between Day Trading vs Swing Trading
Key Differences Between Day Trading vs Swing Trading
Let us discuss some of the major Difference Between Day Trading vs Swing Trading
The major difference is the holding period of time. Day trader closes out all positions before the market hours, whereas swing trading has at least an overnight holding. Day trading positions are held for a single day only. Traders hold swing trading positions for several days to several weeks.
Swing trading involves unpredictable overnight holding risk of gap up opening or gap down the opening of stock. By understanding the underlying risk, swing trades are usually made on a smaller position than day trading. Swing trading exhibits less leverage compared to day trading; day trading generally involves huge leverage, around 8 to 10 times the investment capital.
Day Trading vs Swing Trading Comparison Table
Below is the 6 topmost comparison between Day Trading vs Swing Trading
|The Basis OF Comparison||Day Trading||Swing Trading|
|Security holding time||Less than one day||Overnight to several weeks.|
|Leverage||Highly Leveraged||Leveraged but less compared to day trading.|
|Risk||Daily volatility||Overnight holding risk.|
|Mode||Buying or shorting a security||Buying or shoring security|
|Tools used||Charts||Charts & Patterns|
|Role||Can be a full time||It can be done part-time also.|
Both have their pros and cons. Neither strategy is superior to the others. A trader should choose his approach that suits their personality, skills, and preferences. Day trading is best suited for individuals who are passionate about trading and comfortable being full-time in trading. Discipline, diligence, and decisiveness are key characteristics of a good trader. Learning from mistakes and creating a trading strategy generally pays good results; one should always look to develop his trading style.
Day trading is stressful and intense; it requires understanding technical trading charts and emotional intelligence. It is a risky business. One should be ready to incur 100 % losses and still ready to go ahead from his past mistakes.
Individuals can also perform swing trading part-time by understanding the basics of charts and fundamentals. It is a viable option for traders who want to keep their full-time job and continue trading. Even though it is risky, if done in cash, one cannot lose 100 % of his capital, unlike day trading. Swing traders commonly use chart patterns as one of their most common tools. Swing trading offers the major advantage of doing it part-time, and if done strictly with cash, decent returns can be earned without taking the risk of losing 100 % of capital. Swing trading time can be six months, depending on the investor and his comfort zone.
This has been a guide to the top difference between Day Trading vs Swing Trading. Here we also discuss key differences with infographics and comparison table. You may also have a look at the following articles to learn more.