Day trading vs swing trading

• Day trading is a short-term trading style that involves opening and closing a position or multiple positions on a single trading day.
• Swing trading is a medium-term trading style in which one opens a position or multiple positions and holds them for a few days or weeks before closing them.
• Day traders try to make small but frequent profits from short-term price fluctuations.
• Swing traders try to make bigger but less frequent profits from slightly longer-term price fluctuations.
• Swing trading is less time-consuming than day trading, as day trading involves monitoring the charts daily.
• Both swing and day trading combine fundamental and technical analysis to make trading decisions and identify potential market opportunities.

Day trading, also known as intraday trading, is a trading style in which a trader opens and closes a position or multiple positions in a single trading day.

Day traders try to take advantage of short-term price fluctuations, opening and closing positions which could last a few minutes to a few hours.

They use different time frames to analyse the market and open and close positions, spanning from 15 minutes to 1 hour.

Because of the fast-paced nature of day trading, traders might need a certain level of focus and dedication to monitor the charts and make quick trading decisions. This is also why day trading might not be for individuals only looking to trade part-time.

They also tend to focus on markets that have a higher level of liquidity and trading volume because they enter and exit a position relatively quickly and tend to open multiple positions simultaneously. Furthermore, they also tend to look at markets with a higher level of volatility, which could offer more potential trading opportunities due to constant price fluctuations.

The type of markets a day trader might want to trade could all depend on their personal preference and interests. Some more popular markets that most day traders look at include stocks, indices, forex, and/or commodities, to name a few.

However, the majority of day traders might choose to trade forex currency pairs because the forex market is the biggest and most liquid financial market in the world, with a daily trading volume of roughly $7.5 trillion.

Day trading is typically done through derivative products such as CFD trading, allowing traders to open positions on rising and falling markets and trade on margin with leverage.

Trading on margin with leverage means traders could open a bigger position with only a small amount of investment capital, which refers to the margin. Leverage can magnify a trader’s potential profits. However, it can also magnify their losses as well if the trade goes against them.

Day traders typically combine fundamental and technical analysis within this trading style. They could use various indicators, such as moving averages or MACD, for technical analysis and combine them with price action trading, such as candlestick patterns and chart patterns.

Regarding fundamental analysis, day traders could examine the economic calendar for important economic news events that could highly influence price fluctuations for the financial instruments they might be looking to trade.

Advantages of day trading?

There are several advantages associated with day trading for those individuals looking to take up this trading style. Below, you’ll find a list of all those advantages.

• Due to the short-term trading style, day traders might not be exposed to certain long-term risk factors associated with specific news or economic events. They also won’t be exposed to overnight fees, seeing as they close all their position before the end of the trading day.
• Since most day traders try to open multiple positions during the day, they can potentially make small but frequent profits if and when the market moves in their favour.
• Through proper technical analysis, traders could take advantage of multiple trading opportunities during the trading day.
• As previously mentioned, day trading is mainly traded through derivative products such as CFDs, which allow traders to open positions on rising and falling markets.
• Keeping with the derivative products, it also allows traders to trade on margin with leverage, meaning they can open a bigger position with only a small amount of investment capital.
• Trading with leverage could magnify a trader’s potential profits because the profits and losses are calculated based on the entire value of the position, not just the initial small investment deposit used to open the position.

Disadvantages of day trading?

Day trading also has several disadvantages that traders might want to remember. Below, you’ll find a list of those disadvantages.

• Trading with leverage is seen as a double-edged sword because it can also magnify a trader’s losses if the market moves against their prediction.
• Day trading can be time-consuming as it requires traders to monitor the markets constantly for potential trading opportunities.
• Trading costs can also increase because traders open multiple positions during the trading day.
• Day trading could be highly stressful due to the fast-paced nature and quick decision-making when opening and closing a position.
• Day traders generally look for markets with a higher level of volatility, which could increase the potential for trading opportunities. However, when trading highly volatile markets, there is also a risk that prices will move quickly against their position.
• Day trading could also impact a trader’s emotional state, possibly leading to overtrading or revenge trading.

Swing trading is a medium-term trading style where traders open a position and only close it after a few days or weeks, depending on their overall trading plan.

Swing trading is a popular trading style for individuals who don’t have much time to monitor the markets constantly, which means it could be done part-time.

Like day traders, swing traders tend to trade the market through derivative products such as CFDs. These products allow traders to open positions on falling and rising markets.

And it also allows for trading on margin with leverage.

Regarding market sentiment, swing traders generally look for markets with high liquidity levels and trading volume. Even though they don’t open as many positions as day traders, they still tend to open more than longer-term trading styles such as position trading or buy-and-hold investing.

Some of the most popular financial markets swing traders might consider include stocks, indices, commodities, and certain forex currency pairs, such as EUR/USD, USD/JPY, and GBP/USD.

Now, traders understand that the market moves in a zig-zag pattern, making a series of higher highs and higher lows when in an uptrend and a series of lower highs and lower lows in a downtrend.

The idea is to look at a longer-term trend and look for potential trading opportunities in the price ‘swings’ or retracements. When the market is in an uptrend, traders could open a long (buy) position when the price makes a new higher low and place their profit target at the possible new higher high.

Conversely, when the market is in a downtrend, they could open a short (sell) position when the price makes a new lower high, placing their profit target and the possible new lower low.

Because swing traders could trade both rising and falling markets, they could also look for reversals in the market. If the reversal is captured at an early stage, it allows them to ride the new trend for their desired time duration.

When analysing the market, swing traders use a combination of fundamental and technical analysis. They could use various technical analysis indicators, such as Fibonacci retracement, support and resistance, RSI (Relative Strength Index), Stochastic Oscillator, and price action trading, which consists of candlestick patterns and chart patterns.

These technical indicators have unique features that help them identify particular areas of interest for potential trading opportunities as well as entry and exit points.

Regarding fundamental analysis, swing traders generally keep an eye on certain economic and news events which could have a longer-term influence on the price of specific assets they might want to trade.

Advantages of swing trading?

Swing trading has several advantages for individuals looking to take up this style. Below is a list of all the advantages involved.

• Swing trading is less time-consuming, so traders don’t have to sit in front of the charts all day to look for trading opportunities, which could be less stressful.
• If their predictions are correct, swing traders have the potential to earn greater returns because they keep their positions open much longer than day traders.
• They have the opportunity to trade both rising and falling markets due to the nature of trading derivative products.
• Swing traders use larger time frames to analyse and open and close positions spanning from a 4-hour to a weekly time frame.
• Using higher time frames reduces noise, which could assist in making more informed trading decisions.
• Swing traders open and close fewer positions than their day trading counterparts, meaning fewer transaction costs need to be paid.

Disadvantages of swing trading?

 Several disadvantages are also associated with swing trading, which traders might want to consider. Below is a list of all the disadvantages involved.

• There’s a higher chance of missing a potential trading opportunity because pinpointing the exact swing highs and lows could be challenging.
• Due to swing traders keeping their positions open overnight, they might have to pay overnight fees, which could add up depending on how long they keep their positions open.
• Few trading opportunities might be available because swing traders use higher time frames.
• For those looking to swing trade without using leverage to trade on margin, there might be a bigger cost involved in opening a position.
• Holding onto a position for a longer period of time could impact a trader’s emotional state, leading them to close their position too early or too late.
• There’s a greater risk of losses because the market could go against a trader’s position overnight.
• There’s also the risk of greater losses due to the holding time.

We’ve put together the table below to provide an in-depth overview of the key differences between these two trading styles.

As we mentioned at the beginning of this article, day trading involves opening and closing a position or multiple positions in a single trading day. However, this does not imply that day trading could be more profitable than swing trading.

Day traders need to make quick decisions while constantly monitoring the charts in case their positions start going against them to limit their potential losses.

Day trading also involves being more focused and disciplined in making quick decisions in the market.

Swing trading, on the other hand, involves opening fewer positions and keeping those positions open for much longer, which could result in greater profits. However, swing traders don’t constantly monitor the markets, so they risk greater losses if the market starts moving against them.

Swing traders also require a certain level of patience, seeing as they hold their positions for a few days to weeks.

Deciding which trading style might work best depends on various aspects, such as a trader’s time available to trade, personal trading goals, and risk tolerance.

With all that said, there is one crucial factor which any day trader or swing trader might want to remember, and that is risk management. 

Applying proper risk management to both these trading styles could limit any potential losses during their trading sessions.

One key aspect of risk management is placing stop-loss orders, which are predetermined levels set by a trader at a specific price point. If a trade moves against a trader’s prediction and reaches the level, it will automatically close, limiting any substantial losses to the trader's account.

The choice of where to place a stop–loss will depend on a trader’s risk-to-reward ratio. However, most traders prefer not to risk more than 1-2% of their overall account on a single trade. More aggressive traders might push this to 5%.

Another crucial factor is money management, which means a trader should only trade with money they could afford to lose.

This might be essential to remember because, as previously mentioned, day trading and swing trading are generally traded on margin through leverage, meaning that even though potential profits get magnified, potential losses also get magnified, which could wipe out a trader’s account.