Swing trading vs day trading: the differences

Swing trading and day trading are two different styles that traders use to buy and sell securities with the aim of making a profit. Both styles can be applied to forex, stocks, futures, derivatives, cryptocurrencies, and other markets.

Key swing trading and day trading differences include the time horizons of trades, the time commitment required, and the technology needed. This article takes a closer look at each trading style before comparing the advantages and disadvantages of each.

Swing trading is a style involving several trades a week, on average. Positions are generally held for a few days to a few weeks or even several months in some cases. Common swing trading strategies include both fundamental analysis, which tracks underlying market trends and the health of businesses, and technical analysis, which focuses more on price patterns and factors like volume and momentum.

How to swing trade: a good swing trader will need to spend a good portion of their time on research and learning market trends rather than actually executing trades, since it is a more medium-term activity. Aspiring traders need to open an account with a brokerage, preferably one that offers the option to make simulated trades first to hone a decent strategy before risking capital. Then traders can make a coherent plan and begin placing trades on the broker’s platform.

In day trading, securities are bought and sold within the same day, or even several times a day. This style of trading has a faster turnover than swing trading, but it is not as fast as scalping, where trades are executed in a matter of seconds or minutes. The focus is on price charts and patterns (technical analysis) and on making as many trades as possible. Day traders will also want to open positions in highly liquid securities so they can trade agilely and avoid difficulties entering and exiting those positions when they become unfavourable.

Successful day traders will have to make a larger upfront investment in computer equipment than swing traders. They need top-of-the-line software to automate trades, multiple monitors to track various price charts simultaneously, and very fast computers and internet connections to beat out competitors in rapidly evolving price scenarios.

Novice day traders would be well advised to first do paper trading to develop their skills and then follow the 1% risk rule as they start out. This key guideline suggests not risking more than 1% of your capital on any one trade, as a way to diversify.

Under U.S. law, people frequently doing day trades (pattern day traders) through U.S. brokers have to have a minimum of $25000 in their account. This rule does not apply in the U.K.

Is day trading better than swing trading? It all depends on your goals and preferences as a trader, and on your personal strengths and weaknesses.

Day trading has the potential to be more profitable than swing trading, although there are always exceptions. This allure is doubtless what draws many to the activity, along with the glamour and adrenaline of fast-paced, high-stakes decision-making. However, these same characteristics can make day trading a much higher-stress activity than swing trading, which can lead to burnout.

Day trading is time-intensive and should be approached as a full-time endeavour. Meanwhile, swing trading is often done on a part-time basis, requiring a few hours per day or even per week. For that reason, many people see swing trading as allowing greater personal freedom in terms of lifestyle choices.