In-depth Analysis

Day Trading vs Swing Trading

Having trouble deciding between an intra-day trading style and a less active trading one? Let’s take a look at day trading and swing trading strategies in this article, so then you can determine which one best fits your trader profile.

Day Trading – The most popular intra-day trading style

What is day trading?

The favorite strategy of most retail active traders, day trading is a trading style where you  open and close trading positions from within a few minutes to a few hours, which means that you do not keep any trades open overnight.

By focusing on short-term price movements, day traders believe that they have a greater chance to be profitable – while reducing their overall exposure – compared to traders and investors looking for trading opportunities over the longer-term.

Moreover, day traders know at the end of the day if they’ve had a successful trading day or not, and they can start afresh the next day.

What are the most used trading tools?

To be able to capitalize on rapid price fluctuations, day traders usually need to use margin trading and leveraged trading accounts.

With leverage, they’re able to maximize their profit potential on small price changes and increase their market exposure, thanks to borrowed money from the broker used to open/close trades.

As leverage amplifies all market movements, even small price fluctuations can have a great impact on your trading results (positive or negative). That’s why leverage trading is so popular!

Read our dedicated article to better understand how leverage works and how you can best use it in your trading – How to choose the right leverage for your trading.

Contracts For Difference, or CFD in short, are among the most popular leveraged financial products, as day traders can use long or short trading to take advantage of bullish and bearish market conditions.

Day traders mostly use charts analysis, technical indicators, and price patterns with Japanese candlestick graphs to spot the best trading opportunities. If you’re still wondering which technical indicator to add in your strategy, have a look at the 5 technical indicators every trader should know about in the linked article.

Even though day traders prefer to rely on technical analysis to find out when to enter and exit the markets, they will always have a look at a financial and economic calendar to be aware of major news that will be published when they trade, as they might trigger higher volatility.

If you’re wondering which type of market analysis to choose, have a look at our dedicated article – Technical vs Fundamental Analysis – Which one is best?

Which markets should you focus on?

Because day traders focus on small price changes, they do not require volatile markets. As they need to get in and out quite quickly, they need liquid markets.

Indices and Forex are the top assets for day traders. But you can focus on other markets if you understand them well enough and you’ve developed a profitable strategy that fits them, like shares, commodities and cryptocurrencies, among others.

Advantages of day trading

  • Great way to make quick profits if you have a profitable trading system. You know if you’ve lost or earned money at the end of the trading day.
  • You can start with a relatively small amount of trading capital, thanks to leverage and margin trading.
  • Financial derivatives like CFDs used with day trading allow you to trade bullish and bearish markets.
  • Because you’re never holding your positions overnight, you do not have to pay overnight fees. Moreover, day traders won’t have to face overnight risk associated with holding traders from one day to another.
  • You can use both discretionary and automated trading strategies with day trading.

Risks of day trading

  • Because of the leverage used, you can be overexposed to the markets (most beginners over-leverage their trades).
  • It is also a very risky trading style, as you can face large losses quickly due to leverage.
  • As day trading involves betting on small price changes, you usually have to make several trades during the day, which might increase your trading costs.
  • You need to have a good amount of time and be in the right mindset to trade with this technique, as you have to be in front of the markets to analyze them and decide whether or not to buy or sell the markets.

To discover some tips about how to reduce your over risk, have a look at our article How to best manage volatility and risk when trading.

Swing Trading – A popular short to medium term trading strategy

What is swing trading?

Swing trading is a short to medium-term trading strategy, as trades are typically opened and closed from within a few days to a few weeks, occasionally within a few months. The goal here is to be able to spot key levels, which prices can react to, and price channels to take advantage of a small part of a bigger price movement.

By focusing on a price movement within a trend from a high and a low, swing traders aim at capturing upswings and downswings in asset prices. While swing traders believe that prices evolve in trends, they also assume that they hardly ever move in a straight line, which allows them to profit from minor price oscillations within a trend.

In a bullish trend, they will open a long position from low points and target swing highs, while in a bearish trend, they will open a short position from high points and target swing lows.

What are the most used trading tools?

To be able to spot the best swing opportunities, swing traders need to find swing lows and swing highs to capture the movement between those two points,usually using technical analysis.

Reversal chart patterns, support and resistance levels, channels, and trend technical indicators as well as oscillators are great tools for swing traders. Range trading and breakout trading are two of the most popular swing trading strategies to take advantage of short to medium-term price movements.

Which markets should you focus on?

Usually, swing traders focus on trending markets from which they can detect support and resistance levels to take advantage of. They also focus on assets whose momentum is changing, which might trigger a new trend.

Stocks are among the most popular markets for swing traders looking for ranges to trade, as well as indices. But you can focus on any market that offers the right trading conditions for swing traders.

Advantages of swing trading

  • It is less time-consuming than more active trading styles.
  • You can trade with or without leverage.
  • You can profit from both rising and falling markets.
  • This trading style fits a busy schedule, as you don’t have to actively monitor your positions.
  • Swing trading doesn’t require state-of-the-art technology that a more aggressive trading style might need.
  • The longer you keep your positions open, the more probable significant market movements will occur, and the potential for larger gains is greater than with scalping or day trading.

Limits of swing trading

  • You have to bear overnight risk, as well as overnight and weekend gaps.
  • If you use leverage trading, you will have to face overnight costs and greater risk of loss.
  • Timing the market to find highs and lows might be difficult.
  • It might require more trading capital if you’re not using leverage and margin trading.

What should you choose between day trading and swing trading?

The major difference between day trading and swing trading is the time horizon of your positions.

When deciding between day trading and swing trading, remember to always take into account your personality, your risk appetite, your availability, your trading capital, as well as your trading goals.

If you want to be successful, you will have to pick a trading style that truly suits you, so then you can develop a winning trading strategy.

You might want to consider using a day trading strategy if…

  • you have trading experience,
  • you like to take a certain amount of risk while trading,
  • you do not have a large amount of money to start trading and prefer to use leverage and margin trading,
  • you have time to focus on intraday price movements,
  • you prefer not to have open trading positions at night,
  • you like to know if you’ve been winning or losing money as soon as you’re done with your trading day,
  • you are dedicated and capable of focusing on the markets to detect the best intraday market opportunities for your strategy.

You might want to consider using a swing trading strategy if…

  • you have a full-time job,
  • you prefer to capture short to medium price movements,
  • you don’t have a large amount of trading experience,
  • you have a certain amount of money to open and close swing trading positions,
  • you don’t have time to focus on intraday price fluctuations,
  • you are looking for a trading style that doesn’t require constant monitoring,
  • you don’t mind keeping trades overnight.


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