People prefer different trading styles depending on their goals in the investment world. Some want to make money quickly, and some want to follow a safer approach and prefer long-term investments. Talking about trading styles, day trading and swing trading are two of the most common and popular options.
People often compare these two trading styles and have doubts about day trading vs swing trading. If you are also one of them, you have come to the right place because, in this article, we will discuss every important detail about both of them.
We will discuss their advantages, disadvantages, and key differences to help you pick a suitable option according to your needs. Keep reading to learn what they are and how they differ.
What Is Day Trading?
As the name suggests, day trading involves buying and selling stocks, bonds, and other financial instruments within the same trading day. Day traders generate profit from the price movement during the day and depend on technical analysis.
Day traders have to follow the market closely and invest a lot of time, as a result, many of them are full-time traders. They hold stocks and other financial instruments for minutes to hours and open several positions during the day.
Generally, day traders make multiple transactions to meet their profit targets and don’t look for a huge profit from a single trade. Small profits increase over time, but small losses will also add up.
Therefore, it’s important to have a solid plan before starting your trading journey. Let’s discuss the advantages and disadvantages of day trading.
Day trading advantages
No overnight risks
You want to sleep peacefully, right? Day traders close their positions before or at the end of the day, which means they don’t have to worry about overnight risks. In the case of other trading styles, your profits can disappear overnight.
You can generate profits in bad market conditions
Wouldn’t it be great if stock prices always kept growing without falling? You will never have to worry about finding the right entry points or timing the bottom.
Unfortunately, things don’t work like this in the investment market, and asset prices keep fluctuating. However, day traders can make profits even in bad market conditions.
Since the price keeps fluctuating throughout the cycle, day traders find many opportunities even during bear market conditions, when traditional traders and investors generally panic.
You can make money fast
You are here to make money, right? Day trading is linked with high risk but allows you to make money fast. Unlike long-term investments, traders can make money quickly and book daily profits. Profits can be reinvested, and many day traders become full-time traders once they start getting results.
Money doesn’t get stuck in one asset
If you hold stocks or other financial instruments for a period of time and their price falls, you will have to book a loss, or your money will get stuck. The price may increase at some point, but not everyone wants to wait. So, day trading eliminates such issues.
No formal training required
If you are a beginner, you will be happy to know that formal training isn’t required, and it’s easy to start. All you need is a computer/laptop and an active internet connection to start trading, and you can do it from anywhere you want, even while traveling. You can train yourself or rely on paid tutorials, courses, and services.
Day trading disadvantages
High risk
Every beginner should invest the amount he can afford to lose. You should know that not all-day traders make a profit, and some don’t even stay in the game long enough to make a considerable profit. You should be aware of the involved risks and have a backup plan.
Trade commissions
Trade commissions are a big concern for day traders, as they execute multiple trades each day. Beginners who make small profits are even more concerned about this issue, as trade commissions can be a significant percentage of their profits.
For example, if you pay a $10 commission for a buy and sell order, and your profit is $50, you will pay a 20% commission.
It’s a highly demanding profession
Day trading is a highly demanding profession/task. Traders have to invest a lot of time and pay attention to trends, daily activities, and price movements.
What Is Swing Trading?
Swing traders try to capitalize on short-term trends and patterns. They usually buy a stock, hold it briefly, and sell it, ideally in one day or a few days to weeks. They try to generate profits from price ‘swings’/changes.
The idea is to generate profits from short-term or medium-term price swings rather than worrying about long-term trends. A swing trader isn’t necessarily a full-time trader.
Generally, traders try to enter the market at the beginning of a new swing and exit before the start of an opposite swing. Traders good at chart analysis often make good profits. Now, let’s discuss the advantages and disadvantages of swing trading.
Swing trading advantages
Doesn’t require constant monitoring
You don’t have to be a full-time trader for swing trading, and you can even combine it with a 9-to-5 job. You will have to do technical analysis and invest more time than long-term investors, but you won’t have to check the price chart every 10 minutes.
Doesn’t tie down your money for long periods
Unlike long-term investments, swing trading doesn’t tie down your money for a long period, which is good for beginners and people with limited funds. This flexibility helps them manage everything properly, and they can also make changes to their strategy with ease if needed.
Options aren’t limited to profitable stocks
The price of a stock one year ahead won’t concern a swing trader. Swing traders remain invested in stocks just for a few days or weeks.
Traders can make short-term profits
Just like day trading, swing trading can help people make short-term profits, and they can add up over a time period. With the right risk management plan and a solid strategy, traders can generate a good profit.
Swing trading disadvantages
Overnight and weekend market risks
In the case of swing trading, traders have to worry about overnight and weekend market risks, as they don’t close their position before the end of a trading day. Overnight crises in the financial markets can get in their way, and their profits can disappear.
Trade commissions can add up
Day traders have to worry more about trade commissions than swing traders. However, trade commissions can also add up over a time period in the case of swing trading.
Timing the market swings isn’t easy
Timing the market swings can be a challenge, especially for beginners. One wrong move can lead to a considerable loss.
Key Differences: Day Trading vs Swing Trading
Risk
Both trading styles involve risk, as no investment can be completely risk-free. However, day traders often limit their risk by following the 1% risk. They generally don’t risk more than 1% of their account value per trade and avoid huge losses. Moreover, day trading eliminates overnight risks, which are involved in swing trading.
Time consumption
When we compare day trading vs swing trading in terms of time consumption, swing trading does a better job. Day traders have to invest more time than swing traders, who are often full-time traders.
Trade execution
Day traders have to act quickly when they open and close their positions once the goal price has been attained. A loss due to delay can wipe out their entire day’s profit. They have to do it multiple times every day, which isn’t the case with swing trading.
Capital requirements
Capital requirements are different for swing trading and day trading. Generally, day trading requires less capital than swing trading, which makes it an appealing option for many traders.
Trading strategies
Trading strategies also vary for both trading styles. You should take care of the research part and have a solid strategy before jumping into anything.
Which Is Better: Day Trading vs Swing Trading?
Both are popular trading styles, and both of them are worth trying. Traders should pick an option that suits their skills, style, lifestyle, and personal preferences.
People with a busy lifestyle may not be able to put in the required effort in day trading. If you have read this article carefully, it will be easy to pick a suitable option. You can also try both options. However, you should have realistic goals and not expect to become rich overnight.
Among popular trading options, options trading is also an appealing option. Nevertheless, it can be challenging for beginners to create an effective strategy. If you are interested in options trading but don't know how to make a profit, an options-picking service can help you, such as Foolproof Options.
About Foolproof Options
Foolproof is a popular name among traders and can be a great option, as the service quality is up to the mark. The monthly plan is budget-friendly, and beginners can get it without worrying about budget issues.
Currently, users receive a full trade plan, 3 trade alerts per week, and guidance. The support staff is also highly-professional and always ready to help users in need. The most appealing thing about this service is the 200% money-back guarantee.
Their analysts have years of experience and work hard to help users stay on the right side of the market. This service will also help you save time, as you won’t have to spend much time on the research part. It’s a must-have service for people new to the investment world.
Conclusion
We hope you liked this article and understood the difference between day trading and swing trading. Both have their set of advantages and disadvantages. So, when it comes to choosing a clear winner between day trading vs swing trading, personal preference comes into play.
Both trading styles can help you generate considerable profits, but none is risk-free. Your trading style should be based on your requirements, experience, and profit target.
Since we have discussed everything in detail, it will be easy for you to pick a suitable option. Also, your options aren’t limited to these two trading styles, as there are plenty of other trading strategies to explore.