8 May 2024 - 15min Read

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Day trading vs swing trading

Day trading and swing trading are two of the most popular trading styles, and the main difference between these two trading styles is defined by the amount of time a trader opens and closes a position.

Day trading refers to buying and selling a financial instrument within a single trading day, never keeping a position open overnight. Some traders might choose to hold a position open overnight; however, this is rare due to the short-term nature of this trading style.

On the other hand, swing trading refers to buying and selling a financial instrument within a few days to weeks. This is considered a medium-term trading style.

We’ll cover several additional differences between day trading and swing trading throughout this article, providing insights into a better understanding of these two trading styles.

TABLE OF CONTENTS

Key takeaways

  • 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 consisting of opening a position or multiple positions and holding it for a few days or weeks before closing it.
  • 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 combines fundamental and technical analysis in making trading decisions.

What is day trading, and how does it work?

Day trading, also known as intraday trading, is a trading style that involves having a trader open and close 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 up to 1 hour.

Now, 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, which is also why day trading might not be for those 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 interest. 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 $6.6 trillion.

Day trading is typically done through derivative products such as CFDs or spread betting, 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 potential losses as well if the trade goes against them.

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

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

Day trading graph

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 and spread betting, allowing a trader 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 they 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.

  • As we saw in the previous section, trading with leverage can magnify profits; however, it also can magnify losses if the market moves against a trader’s prediction.
  • Day trading can be time-consuming as it requires traders to monitor the markets constantly in order to look for potential trading opportunities.
  • Trading costs can also add up 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 tend to 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 for prices to move against a trader’s position quickly.
  • Day trading could also impact a trader’s emotional state, possibly leading to overtrading or revenge trading.

What is swing trading, and how does it work?

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 those individuals who don’t have much time to constantly monitor the markets, which means this could be done part-time.

Like day trading, swing traders also tend to trade the market through derivative products such as CFDs or spread betting. Swing trading through derivative products allows 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 look at include stocks, indices, commodities, and certain forex currency pairs, such as the 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 making a series of lower highs and lower lows in a downtrend position.

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 reversal in the market, and 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. Swing traders 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 to identify particular areas of interest for potential trading opportunities and 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.

Fibonacci retracement in trading demonstrated

Advantages of swing trading?

Swing trading has several advantages for individuals looking to potentially take up this trading 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.
  • There is the potential to earn greater profits if their predictions are correct because swing traders 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.
  • Due to using higher time frames, there is less noise, which could assist in making the right 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?

 There are also several disadvantages associated with swing trading, which traders might want to keep in mind. Below is a list of all the disadvantages involved.

  • There’s a higher chance of missing a potential trading opportunity because it could be challenging to pinpoint the exact swing highs and lows.
  • 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.

Key differences between day trading and swing trading

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

Feature

Day trading

Swing trading

Position holding period

Day trading involves opening and closing a position or multiple positions in a single trading day.

Swing trading involves opening and holding a position or multiple positions for a few days or weeks and then closing it.

Types of analysis used

Day trading combines technical and fundamental analysis; however, most day traders tend to focus only on technical analysis to look for trading opportunities and entry and exit points.
They might only look at fundamental analysis when certain news and economic events could cause short-term price fluctuations.

Swing trading uses a combination of fundamental and technical analysis. They use technical analysis to look for trading opportunities and entry and exit points.
Unlike day trading, they tend to put just as much focus on fundamental analysis as technical analysis, looking at economic and news events that could cause longer-term price fluctuations and get a broader overview of the financial market they might be interested in.

Level of time commitment

Day trading might require a trader to constantly monitor the charts, looking for potential market opportunities as they tend to open multiple positions during a single day.

Swing trading is less time-consuming because swing traders tend to open fewer positions than day traders and keep those positions open for a few days or weeks.
Swing traders tend to spend the most time on their analysis, which could last from a couple of minutes to an hour, depending on how many financial instruments they want to trade.

Tools and indicators

Day traders use various tools and indicators such as moving averages, support and resistance zones, MACD, and price action, including candlestick patterns and chart patterns.

The tools and indicators used in swing trading are moving averages, support and resistance zones, RSI (Relative Strength Index), Stochastic Oscillator, Fibonacci retracement tool, and price action.

Trading strategies

Trading strategies

Some of the most popular swing strategies include retracement, reversal, breakout, support and resistance, and trend trading.

Time frames used

Day traders use different time frames to do analysis and enter and exit positions spanning from 15 minutes to 1 hour.

Swing traders also use different time frames to do their analysis and enter and exit positions spanning from 4 hours to a weekly time frame.

Factors to consider about day trading and swing trading

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 could depend 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 of the key aspects of risk management is placing stop-loss orders, which is a predetermined level 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 their 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.

People also asked

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A day trader attempts to take advantage of short-term price fluctuations by opening and closing a position or multiple positions within a single trading day, constantly motoring the markets for opportunities.
They use a combination of fundamental and technical analysis; however, they focus more on technical analysis and only use fundamental analysis on certain news and economic events that could influence short-term price movements.
They try to make small but frequent profits from these short-term price fluctuations, with profit targets unique to each trader’s trading plan. They also place strategic stop-losses to avoid any potential losses when a trade moves against them.

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A swing trader looks at medium-term price fluctuations in the market, opening a position and holding it for a few days or weeks before closing it. They are less worried about short-term price fluctuations and don’t monitor the charts daily like day traders.
Swing traders use a combination of fundamental and technical analysis. They use fundamental analysis to gain a broader perspective of the financial market they might be interested in and technical analysis to look for trading opportunities and entry and exit points on the chart.
They also use take-profit and stop-loss orders strategically according to their trading plan.

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Day trading and swing trading are two different trading styles. Day trading involves making quick trading decisions and opening and closing multiple positions during a single trading day while monitoring the charts daily.
Swing trading is less time-consuming because traders open and hold a position for a longer period of time before closing it.
Both of these trading styles are unique and might ultimately come down to personal preference and other factors such as the amount of time a trader has available to monitor the charts, how much money they have to trade with, or their trading goals.

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Both day trading and swing trading involve a certain amount of risk.
Day trading involves making decisions based on short-term price fluctuations, keeping a position open for a few minutes to hours. This means the potential profits and losses could be smaller compared to swing trading, which involves holding a position open for a few days to weeks.
However, because both day trading and swing trading can be traded on margin with leverage, those potential losses could be magnified. Regardless of the trading style, proper risk management could be essential in limiting those potential risks.