The Difference Between Day Trading, Swing Trading And Investing

Updated: May 11, 2024 | Published: May 11, 2024
Verified Investing
By Verified Investing
The Difference Between Day Trading, Swing Trading And Investing

The difference between day trading, swing trading and investing is time frame. Day trading means a trader enters and exits a position intra-day. This could be within seconds, minutes or hours. A swing trader will either buy or short an asset (stocks, crypto, commodities or forex), holding for days, weeks or months, but not longer than twelve months. Once you pass the twelve month hold time, it becomes a long-term capital gain or loss. This is what makes an investor (long-term).

A day trader's and swing trader's taxation (at least in the United States) is as short-term capital gains. This means it is treated like income per the IRS. While a long-term capital gain from a long-term investor is taxed at a lower rate.

Long-term investors look at bigger macro trends and fundamentals. They invest with the belief of a company continuing to do well for years and even decades. Often long-term investors will look for stocks that pay a dividend or assets that they expect to do well over a 20+ year horizon.

Day traders exclusively follow technical analysis and charts. A day trader is looking to grab small moves intra-day on a liquid asset, taking advantage of price disparities and emotional investors panicking with fear or rushing in with greed. Day trades are mostly contrarian investors, buying panic and selling greed. Occasionally, a day trader will buy a bull flag or short a bear flag for a continuation of the trend.

A swing trader generally will use either technical analysis or fundamental analysis and often both. They look for assets that have overshot valuation metrics or chart support/resistance because of emotion and are ready to snap back within days, weeks or months.

Generally, the smaller the time frame an investor trades, the higher the risk. The longer the time frame, the more an investor can be wrong in the near-term but be right in the long-term. This is becomes markets generally trend higher over time.

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