When it comes to trading there are two main camps: day traders and swing traders.
The end goal is the same for both: seeking an opportunity to make a profit from short-term movements in stock prices.
Both approaches are similar but also different. We will weigh the pros and cons of swing trading vs day trading in order to give you a better understanding of each and a better idea of what strategy might suite you best.
Swing Trading
Swing traders seek to identify swings in stock, commodity and or currency prices that take place over the course of a number of days. We are talking anywhere from a few days to a couple of weeks.
Since swing traders have a longer time horizon they don’t need to sit glued to their workstation like most day traders. They are free to do their research and then place their trades with price targets and stops and then walk away.
Typically, they will plan their positions in advance, set appropriate stop losses and take profits and then let the market do its thing.
Keeping a trade open for longer can allow a stock to run higher in profits but it also runs the risk to overnight news that can potentially gap the price down which would potentially run through your stop price and close you out at a lower price.
Another point to note is that swing traders don’t require as much hardware as day traders.
When you are swing trading there is no need to keep an eye on several charts at once, so you only really require one computer and one monitor.
When you are day trading, in contrast, you may want several monitors displaying several different charts and other data to keep on top of the tiny fluctuations you are hoping to profit from.
Day Trading
Day traders make multiple trades in a single day based on technical analysis, fundamental analysis and complex charting systems. Day traders usually trade in stock, commodities or currencies and aim to make small profits across multiple trades. They can’t win every trade, of course, but in the event a trade is going against them, they try to cap losses as soon as possible. Day traders, almost by definition, do not normally keep positions open overnight.
Day traders can make a lot of money. If they have the patience and discipline to wait for the right trade and catch it just right, they can turn a reasonably modest sum into a small fortune. That said, it is a well-known fact that most day traders lose money. The reasons are numerous and complex. Some traders lose money because they don’t have the skill or technical understanding to make money, others are under-financed and yet other don’t have the right mindset. There are a number of reasons that day traders lose money and a few very specific reasons that some day traders make money.
Most traders, to all intents and purposes, are playing a zero-sum game unlike
those, perhaps, with longer time horizons and investing in the stock market for
the long-term. Day traders have to compete with other day traders, hedge funds
and other big financial institutions.
Most day traders trade for a living, it is their full-time job. It has to be because they have to be on the ball, alert and ready for small fluctuations that they might be able to profit from. That’s why along with patience and discipline, day traders need to have nerves of steel and also be decisive.
Day Trading vs Swing Trading which is more profitable
Both styles of trading have pros and cons. Neither strategy is better or more profitable than the other. It all comes down to which strategy suits a trader better and that will depend on a number factors including the traders education and mindset and the physical resources available like computers, monitors, software and so on.
Day trading is probably better suited to those who like action and prefer to be trading full-time. It requires a thorough knowledge of various charting systems and a complete understanding of whatever trading platform that the trader is using. Day traders need to be in control of their emotions at all times, loss of composure can be expensive. They also need to be able to handle losses because losses are an inevitable part of trading. Even the most profitable hedge funds have losing years; likewise, day traders can have losing days, weeks, months or years.
Swing trading doesn’t require that same stock of emotional fortitude. The reason is simple: when you don’t have to be sat there monitoring the price movement all day, you aren’t on that same emotional roller-coaster. It still, obviously, requires a thorough understanding of technical analysis and the particular trading platform being used but you can make your decisions and then walk away and just wait to see what happens.
So Which Style Should You Go For? Swing Trader or Day Trader
Hopefully, this article has demonstrated that both trading styles have pros and cons but it ultimately comes down to which one suits you better. Swing trading vs day trading is about which style suits you better. As a trader you have to be honest with yourself.
A trader’s greatest asset is not his capital, money can come and go; it’s not his education, you can always learn new things. It is his self-honesty. The reason that so many day traders lose money is because they delude themselves into thinking they are better than they actually are. There is even a psychological term for it, the Dunning-Kruger effect. It is a cognitive bias that occurs when people with reasonably low ability at something overestimate their ability.
Be honest with yourself, if you have really good control of your emotions, and you have enough capital, time and the right equipment, day trading might be the style for you. If, on the other hand, you know that you don’t handle losses well or you find it hard to keep a check on your emotions sometimes, swing trading might be the better of the two options. That way you can take a more calm and methodical approach and take time to think through your decisions.
Ultimately, as any type of trader, that should always be your number one goal: minimize your risk and maximize the potential upside. Do that often enough and you will increase your chances of becoming a profitable trader, whether that is as a day trader or a swing trader.