Day Trading vs Swing Trading

What is the difference between day trading and swing trading? While day trading and swing trading share some characteristics, they differ in important ways.

Duration

The most obvious difference between day trading and swing trading is time. Day trades seldom last an entire day. Many are completed in hours or even minutes. In contrast, swing trades can last for days or weeks before hitting the trader’s goals. Swing trades most commonly run from two days to two weeks.

High-frequency trading (HFT) takes day trading to extremes. These trades are performed by sophisticated computer programs that can spot and harvest small profits in less than a second.

Objectives

The scope of day trading and swing trading overlap to some extent. Both seek out high-volatility targets to take advantage of price movements. Day traders focus on small, immediate gains, making several quick trades throughout the day. Swing traders seek intermediate gains by holding positions through multiple sessions. Swing traders make far fewer trades than day traders but make larger profits per trade.

Strategies

Both day traders and swing traders depend on volatility to make profits. It is vital for both swing and day traders to plan entry and exit points before entering a trade.

Day traders are more reliant on high volatility than swing traders. The higher a stock's daily volatility, the greater the opportunities (and risks) for the day trader.

They use complex charting programs to inform their technical analysis, sifting through large amounts of data in real time to make quick trading decisions multiple times per day. Day traders also have to constantly monitor business news for market-moving events.

Day traders compensate for small per-share profits by taking larger positions in their trades. They close out all positions before the end of each trading session to avoid overnight risks.

Swing traders search for highly liquid, volatile stocks with large trading volumes, focusing on large-cap stocks. They use technical analysis to chart daily and weekly highs and lows and track momentum to identify profitable intermediate-term trades.

Risks

Swing trading, and especially day trading, entails a larger amount of risk than more passive investing strategies.

Day trading is extremely risky, requiring substantial skill and iron discipline for success. It is a stressful full-time job that requires constantly monitoring and interpreting large amounts of data to track trades and spot temporary opportunities.

Only those who thrive under pressure and can make important split-second decisions can achieve long-term success as a day trader. Because day trading requires taking large stakes in each trade to make reasonable profits, one mistake can incur heavy losses. Even the most successful day traders can suffer substantial losses due to mistiming a trade or simply bad luck.

Swing traders must also exercise objectivity and discipline in their trades. Unlike day traders, they must account for the market risk of holding positions overnight or through the weekend. Unexpected events can cause large price movements outside of trading hours.

Because most swing traders have full-time jobs, they may have less time and opportunity to learn vital trading skills. Having a “day job” also affects their ability to react quickly to sudden market movements.

Swing traders also miss out on longer term profits by exiting a position in a stock that is experiencing a sustained upward trend.

Conclusion

Movies and TV make day trading sound glamorous and exciting, but the truth is that it is an extremely difficult profession. Success requires substantial knowledge, iron discipline, and a little bit of luck. Most people are unable to deal with the high levels of constant stress. Some thrive on it.

For most people, swing trading provides the opportunity to make money in active investing while holding down a full-time job. While it still requires skill and objectivity, the lower time requirement and excitement of making money swing trading make it the most popular form of active investing.