The Difference Between Swing Trading & Day Trading

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Swing trading and day trading are two terms that any trader will probably have come across at some point. Although the goal of both these methods of trading is the same, the approach is a bit different.

Some might argue that swing trading is better than day trading or vice versa. But these opinions differ depending on the type of trader in question. Both these methods come with their own pros and cons. In fact, swing trading is quite different from day trading and requires not just a different approach but a totally different mindset as well.

In this article, we take a look at some of the differences between day trading and swing trading. We’ll also outline some scenarios where one type of trading is better than the other.

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What is Swing Trading?

Swing trading is primarily trading in the medium term. In this approach, you are trading the key swings in price of the instrument, such as the short or medium term trends.

Swing trading requires you to keep your positions open overnight, spanning from a few days to a week or two.

The methodology used for swing trading is a bit different. In some markets, swing trading is more preferable due to market behavior.

What is Day Trading?

Day trading, also known as intraday trading, is when you trade the forex markets during the day or the trading hours. This type of trading is very short term and your positions are closed before the end of the day.

Most beginners often prefer to use the day trading approach. This is due to the relative ease of day trading.

However, as you will understand in the next sections of this article, there are some key differences between these two types of trading methods.

The Differences 

Here are a few of the most important differences between swing trading and day trading.

Time Frames and Duration

The time frames used for swing trading vastly differ from day trading. If you were to swing trade, your primary time frame could be the 4-hour chart and higher.

Although there are instances where you might make use of a smaller time frame, your primary decision making comes from the longer-term charts.

With swing trading, your eventual goal is to capture the medium-term trends in the instrument. This would mean having to keep your positions overnight in order to achieve the price target.

With day trading, on the other hand, you are focusing more on the day-to-day volatility of the asset or instrument that you are trading. It is quite likely that your trading is done during business hours.

Profit and Loss

The profit and loss levels can vary significantly between these two types of trading methods. With swing trading, your profit and loss levels can be quite big compared to those set on a day trading strategy.

Therefore, swing trading requires quite a bit of familiarity with position and risk management. Traders will need to nurture their trades and constantly adjust their positions overnight.

With day trading, your profit or loss is achieved during the intraday sessions. This means that towards the close of the trading session, your positions would be zero, most of the times.

However, the major difference comes from the profits or losses made during the course of the trade. Typically, swing traders set much bigger take profit and stop loss levels compared to day traders. This is due to the nature of the methods involved.

If you want to target big swings in price, then you need to allow enough breathing space for your trades when it comes to swing trading.

Market Swings

Because swing trading requires you to trade overnight, there are significant risks behind this. For one, slow trading hours can lead to widening spreads. This could potentially increase the risk of your stop or profit levels being hit at different prices than what you intended.

Erratic price action, which is also prevalent during off-market hours, is another big risk that swing traders need to take into account.

Of course, that is not to say that day traders are better off. There are moments when even during peak trading hours, you can come across very volatile markets. However, given that day traders manage their positions during the trading hours, it is a bit easier to handle.

Overtrading or Trade Volumes

With day trading, there is a risk of overtrading. This can happen from time to time, especially if price tends to move in one direction for prolonged periods of time. But there are risks involved when it comes to over trading as well.

For example, if you are in a winning streak, there are higher chances that the more you trade, the more emotionally involved you become. You could also get biased to the trades and this could lead to big losses if price turns around.

With swing trading, given the fact that your positions are kept open over a number of days, the risks of overtrading lessen. But that is not to say that swing trading will completely wean you off overtrading. There are some traders who open multiple positions across different markets and instruments with swing trading as well.

Trading Costs

There is no way to avoid trading costs, regardless of whether you are a swing or day trader. When you day trade, chances are that you are either paying commissions on the positions you open and close or paying the spread.

When you swing trade, you would be paying (or receiving) overnight swap rates as well, besides paying commissions or spreads on your trades.

No matter which way you look at it, there are costs involved with both swing trading and day trading. However, if you are an active day trader, there is a good chance that you end up paying more based on the number of trades you make per day.

In some markets such as futures, for example, swing trading incurs additional fees such as having to maintain a certain amount of capital in margin. These margin levels are higher compared to just day trading.

Trading Strategies

There is also a good chance that a swing trading strategy is quite different from the strategy you would use for day trading. Therefore, traders need to hone their skills even on the trading strategies that they employ.

There are some strategies that work well in both methods of trading, but to be consistently profitable, swing traders use completely different methods of technical analysis compared to day traders. There are some exceptions, of course, such as price action based patterns.

Trading strategies also tie into the profit and loss levels. Swing trading strategies often require bigger profit and stop loss levels compared to day trading.

Swing Trading vs. Day Trading – Which is better?

The answer to this depends entirely on a trader and their familiarity with the markets they are trading. Not to forget, the answer also depends on one’s risk tolerance, patience and the time that goes into it. Swing trading requires traders to be patient and overlook the day-to-day volatility.

For day traders, it is the daily volatility that matters which enables them to trade effectively.

Both the methods of trading share the same bottom line, which is to make profits from the markets you trade. It is the approach that differs.

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