Day Trading and Swing Trading: What Are The differences?
In the world of trading there is typically only two main types of traders; those trade on long–term investments, and those who trade short–term. It is the latter that will be our focus for this article. Short–term traders can be split once again into various types, this article will focus on swing traders and day traders. As with all things in life, both swing and day trading have their pros and cons, and the pros of one method to an individual trader may be cons to another trader. So what is the differences? And what are the advantages of each?
If you want more information about day trading brokers, we have included a comparison of the best day trading brokers here.
What is Swing Trading
Swing traders look to take advantage of swings in the various stocks, commodities, and currencies that they choose to trade in. Swing traders analyse their markets of choice and look for potential movement, perhaps in opposition to the current trend, perhaps movement away from stable, and seek to capitalise on that movement. These swings can take anything from days to weeks to resolve, placing a swing trader somewhere between a trend trader and a day trader in terms of time frames. Swing trading doesn’t typically offer as much of an opportunity for big gains as day trading.
What is Day Trading
The typical behaviour of a day trading involves more or less what you’d expect from the name. Rather than making investments which may take weeks, months, even years to pay off, day traders focus their attention on making smaller profits from a high number of trades. A day trader will typically analyse their market (or markets) of choice, perhaps using a charting system, and place dozens of trades in a single day. The aim is to make a profit by making mostly successful trades and capping the losses on the unsuccessful ones so as not to minimise the losses. Day trading is a purely short term affair, and as such, these traders will rarely hold onto trades over night.
So Which is Better?
As with many things in life, there is no “better”, as such, there is only what suits you best. For example, if you’re looking to make trading your full–time gig, day trading is probably the better option due to a higher potential for profits. Of course the other side of that coin is the higher risk of losing a lot of money. Day trading typically needs your undivided attention to properly monitor your trades and ensure you don’t miss out on opportunities, and that can result in a lot of stress. Spending day after day staring at computer screens intently is not everyone’s cup of tea. Swing trading, on the other hand, is a bit more relaxed. The longer time frame means a swing trader needn’t sit watching their trades play out, and can even trade alongside a full time job. It’s worth noting that, due to swing trades typically being held over night, the margins required are a little higher. For example, the maximum leverage of a day trade can be twice that of a swing trade, meaning more capital is required per individual trade in order to make a worthwhile investment. Swing traders are still at risk of significant losses, however. The method of trading cannot protect your capital from bad trading decisions or unlucky market swings.
Another factor to consider is the initial cost. If you’re going to make a real effort at day trading, you will want to invest in the proper equipment and tools to give yourself the best chance. Charting software, computer equipment (multiple screens are a must) as well as various recurring expenses such as the cost of obtaining live price quotes. Swing trading meanwhile can be accomplished with little more than a standard computer and the typical trading tools available to all. With a little patience and diligence, a swing trader can get by with little to no investment. Swing trading typically yields lower rewards than day trading, so the investment needed to get started in day trading is just another risk to consider.
Ultimately, if you’re going to choose between swing and day trading, it all boils down to how much you want to make, how much you’re willing to risk, and how much of yourself you want to give. Those who devote more time and are willing to risk more of their money will be in a position to reap greater rewards, but as always, your capital is at risk when you trade, no matter how you decide to do it.
Where to Trade
So you’ve decided whether you want to be a swing trader or a day trader, now you just need to pick a place to trade. Fortunately there is a veritable cornucopia of brokers online to help you achieve your trading ambitions, such as eToro, Plus500, FXPro, and many more. For those looking to swing trade in their spare time, sites like eToro and ZuluTrade are particularly suited due to their social component. On these services, not only can a swing trader use the platform’s tools to make trades, they can also see what other traders on the service are doing, adding an extra data point to their analysis. If day trading is more your bag, most of the available trading platforms have the tools you need, it’s just a matter of finding one you like. Perhaps there are different aspects of certain platforms that you prefer. If that’s the case, there’s nothing stopping you from using more than one trading service.
For more information on Plus500, read our Plus500 review here.
Fortunately, many of these platforms will allow you to open a “demo” account, or try a practice mode before ever trading with actual money. And, while this kind of trading isn’t recommended for those with little or no experience, it is still worthwhile for those who do have that experience to try a practice run of any new trading platform before taking the leap. As with all trading it is important to remember that your capital is at risk.