Day Trading vs Swing Trading: A Detailed Comparison

Day Trading vs Swing Trading: A Detailed Comparison

7 months ago

Short-term trading is all about quick decisions with high risk/reward ratios. Learn about two of the most popular short-term trading methods used in the stock and crypto markets

Day Trading vs Swing Trading: A Detailed Comparison

Mục lục

When it comes to relatively short-term trading, there is usually one of two camps you can fall into: day trading or swing trading. Each has its goals, outcomes, pros, and cons. But at the end of the day, they both essentially serve the same purpose.

Both of these are trading strategies meant for analytical traders. For most traders, they are cut from the same cloth, but the critical differentiation between them is what precisely positions them to be so diverse in the way they are used to earn a profit.

For any trader, be a beginner or a seasoned professional, it can help to know the fine line separating the two. Not only is it beneficial in developing a precise trading strategy, but it can also help manage expectations down the line.

Day Trading

Day trading is quite infamous when it comes to guiding beginners who are just entering the market. Much like its name implies, it is the trading strategy that relies on a short-term cycle of—you guessed it—a day. Sometimes, a more textbook way to call it would be intraday trading, but it generally represents the same thing.

In a typical stock market, a day trader typically gets up to start their trading just as the market opens. They choose the move for their chosen security through careful planning and analysis and hold their position. Before the market closes at the end of the day, they will have completed their trades and made any moves they need to make. If not, their position is generally squared off by their broker.

Since a day trader positions to make themselves a profit in a small amount of time, there can be certain barriers to entry. The first one is the required skill and expertise to conduct short, high-frequency trades with patience, foresight, and a clear plan in mind.
The second is the amount of capital needed to make day trading a profitable endeavor. The profit margin is equally slimmed because securities tend to move by slight fluctuations in a single day. Therefore, more often than not, a profitable day trader will need a sizeable portion of investment against their given security or asset.
Because of these two peculiarities of day trading, high liquidity assets are typically thought to be the most suitable for this form of trading. This makes day trading popular among stock trading, cryptocurrencies, and Forex as the margins closely align with the outcomes expected by a day trader.

Benefits of Day Trading

·        Greater profit-making potential

·        Fixed trading schedule

·        Results are instantly observed

·        No overnight risk

Join us in showcasing the cryptocurrency revolution, one newsletter at a time. Subscribe now to get daily news and market updates right to your inbox, along with our millions of other subscribers (that’s right, millions love us!) — what are you waiting for?

Drawbacks of Day Trading

·        Requires disciplined trading approach

·        Smaller margin of profit per trade

·        Greater risk of losses

·        Larger investment capital needed

Swing Trading

Swing trading involves leveraging a position, holding it for a short but substantial period of time, and profiting off the outcome of the position. The time period isn’t fixed, but it can be anywhere from days to weeks. Most swing traders end up in this bracket as they rely on short, secondary trends.
Swing traders can either long or short a specific coin/asset/security and wait for the profit. As a result, the trading is a bit more passive and does not rely on a fixed time schedule.
Typically, a swing trader will analyze a volatile but liquid asset market and leverage a certain position against it. The exact position and time of the swing may be determined by observing past trends, monitoring news, or keeping up to date with current events. Once the trader is confident in their position, they will hold it until the prescribed end of the swing. 

As the price moves over the corresponding days or weeks, swing traders may passively observe or choose not to observe their asset’s performance. Generally, monitoring swing trades require less attention as there is no need to open many positions. A swing trader’s strategy is to profit off a few but meaningful trades. This is what makes it manageable for many.

While a swing trader has the potential to gain sizeable profit from a swing, they equally hold as much risk for it to result in a loss. This is where a swing trader uses high volatility to gain higher individual risks with higher individual profit.

Benefits of Swing Trading

·        Requires less time commitment

·        It can be started with less investment capital

·        Does not require a high level of expertise

·        Larger profit margin per trade

Drawbacks of Swing Trading

·        Overnight risks

·        Requires patient trading approach

·        Timing the market can be difficult

·        Chances of greater losses on individual trades

The Difference Between Day Trading and Swing Trading

Some might say that comparing day trading to swing trading is a lot like comparing apples to oranges. And in most cases, they would be correct in assuming so. There are enough lines of separation between the two trading methods to make them suitable for two very different types of traders.

Yet, at the same time, they are branched off from the same path. That’s why it is often important to understand what separates the two. If nothing else, it can strengthen your fundamental knowledge of what the two trading strategies represent.

Holding Period

The first major differentiator between the two trading methods lies in the holding period. A day trader may comfortably hold from anywhere between a couple of minutes to a few hours. However, this limit should never cross the opening and closing times of the market.

On the other hand, a swing trader is subject to the period of the trend or swing. They may have to hold their positions from days to weeks. This factors in when you consider things like overnight risks and holding fees from the exchange.

Number of Trades

The next difference lies in the number of individual trades. day trading operates on the basis of “death by a thousand cuts,” where a larger number of lesser trades make up the required profit.

On the other hand, swing trading relies on a couple of bulkier trades to make up the difference.

In the case of day trading, you may be subjected to more transaction fees overall and a greater need for monitoring. However, you lose the possibility of incurring a single considerable risk from swing trading.

Required Commitment

As mentioned previously, both trading methods are built for two different types of people. Nowhere is this factor more noticeable than in the trading commitment required by the two.

By all means, day trading is a full-time job that requires constant analysis, monitoring, placing trades, and selling off positions. This must be done across multiple trades within the span of the open market.

In contrast, swing trading is more flexible with its strict time commitments. Often, it may only require two to three hours a day. The rest of the time may be spent passively holding the position and awaiting the selloff.

Summing Up

As you may have observed, there is no single strategy that trumps the other on all fronts. Each strategy carries certain risks and provides certain rewards. It will be up to the individual trader to decide which strategy best suits their skills, schedule, expected outcomes, and trading styles.

This article contains links to third-party websites or other content for information purposes only (“Third-Party Sites”). The Third-Party Sites are not under the control of CoinMarketCap, and CoinMarketCap is not responsible for the content of any Third-Party Site, including without limitation any link contained in a Third-Party Site, or any changes or updates to a Third-Party Site. CoinMarketCap is providing these links to you only as a convenience, and the inclusion of any link does not imply endorsement, approval or recommendation by CoinMarketCap of the site or any association with its operators. This article is intended to be used and must be used for informational purposes only. It is important to do your own research and analysis before making any material decisions related to any of the products or services described. This article is not intended as, and shall not be construed as, financial advice. The views and opinions expressed in this article are the author’s [company’s] own and do not necessarily reflect those of CoinMarketCap. CoinMarketCap is not responsible for the success or authenticity of any project, we aim to act as a neutral informational resource for end-users.
2 people liked this article