Day Trading vs Swing Trading

Difference Between Day Trading and Swing Trading

Day trading refers to trading (buying and selling) in a single day to make profit based on security analysis method, i.e. technical analysis and it is based on stock patterns and charts whereas Swing trading is somewhat relaxed than day trading as it refers to trading on weekly, monthly basis on a strategy basis to make plan.

If one intends to pursue a career as a traderCareer As A TraderForex Trader, Equity Trader, Commodities Trader, Fixed Income Trader, and Derivatives Trader are all possible trading careers.read more, then one must understand and choose between two basic categories of trading i.e., day trading vs. swing trading.

Nevertheless, the eventual aim in the case of a day traderA Day TraderThe day trader is an individual who trades in the financial markets daily to earn profits by exploiting the inefficiencies present in the market. The three types of traders are - individual traders, financial institution traders, scalpers and momentum traders.read more or a swing trader remains the same, which is to generate profits. However, the holding period and the technical tools which are being used to achieve the ultimate aim differ between the two classes of traders, which will be the topic of discussion in this article.

Besides, there are several other factors that a trader needs to take into account to select the conducive trading strategy, and these factors include (not exhaustive) time invested, personality trait, size of the account, trader skill level, and level of commitment among others.

What is Day Trading?

As the name suggests, a day trader makes multiple trading transactions on a day-to-day basis. A day trading transaction is executed with the intent to profit from price divergences during the day due to various market information and sentiment. The trader might get into buying or sell positions based on technical, fundamental, or quantitative valuation.

  • A day trading doesn’t hold positions overnight (i.e., open and close multiple positions within a single day) and looks to make generate profit through trading securities.
  • A day trader usually devotes around two hours every day to monitor and track the short-term price movements.
  • To cater to the dynamic and fast-paced trade requirement, a day trader uses advanced charting systems, which may be designed in intervals of 1, 5, or 30 minutes.

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What is Swing Trading?

A swing trader, on the other hand, buys or sells securities and holds them for a time horizon, which might vary from few days to several weeks. A swing trader also gets into a buy or sell position based on technical, fundamental, or quantitative valuationFundamental, Or Quantitative ValuationDiscounted cash flow, comparable company analysis, comparable transaction comps, asset valuation, and sum of parts are the five methods for valuing a company.read more, and the trade might take longer to work, unlike day traders.

A swing trader believes in the accumulation of gains and losses more smoothly and slowly as compared to a day trader.

However, there can be occasions where a swing trader can also have specific swing trades that result in significant gains or losses in a brief period. A swing trader usually does not take up trading as a full-time job.

Day Trading vs. Swing Trading Infographics

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Key Difference

  • A day trader buys or sells securities and liquidates the positions within the same day. In contrast, a swing trader maintains the positions for a longer period, varying from few days to several weeks.
  • A day trader, on average, invests around two hours each day to monitor price movements in their portfolio. In contrast, a swing trader usually invests a relatively lesser amount of time, which may even be as long as weekly.
  • A day trader’s day can be fast-paced and adrenaline-pumping as it requires them to make quick decisions and manage fast-paced trading, while on the other hand, a swing trader needs to be calm and make decisions keeping in mind relatively long-term return.
  • A day trader uses advanced charting systems, which may be designed in very short intervals, which varies between 1 to 30 minutes, while a swing trader uses lesser complex charting systems. The monitoring can be done at an interval of around 1 to 4 hours.

Day Trading vs. Swing Trading Comparative Table

BasisDay tradingSwing trading
Holding PeriodAll the positions are either bought or sold and eventually liquidate the positions on the same day.The Holding Period is more extended, which varies from a few days to several weeks.
Valuation techniqueA day trader’s positions are based on a various analysis which includes technical, fundamental, or quantitative valuation technique.A swing trader also gets into a buy or sell position based on a technical, fundamental, or quantitative valuation technique.
Level of commitmentA day trader is required to invest around two hours every day to monitor and track the short-term price movements, and as such, it can be full-term employment.A swing trader usually doesn’t take up trading as a full-time job and invests a lesser amount of time.
Personality traitNeeds to be dynamic as a day trader’s day can be fast-paced and adrenaline-pumping, which needs them to make quick decisions and manage fast-paced trading.Needs to be calm and take well thought out decision in trading with relatively long-term return expectations as a swing trader looks at a bigger picture
Level of monitoringUses advanced charting systems which may be designed in intervals of 1, 5, or 30 minutes as a day tradingDay TradingDay Trading refers to buying & selling securities/financial instruments within the same trading day to earn profit through margin loans. Day traders are also called speculators as they do a lot of guesswork in terms of securities. read moreDay Trading refers to buying & selling securities/financial instruments within the same trading day to earn profit through margin loans. Day traders are also called speculators as they do a lot of guesswork in terms of securities. read moreDay Trading refers to buying & selling securities/financial instruments within the same trading day to earn profit through margin loans. Day traders are also called speculators as they do a lot of guesswork in terms of securities. read more requires very frequent monitoringUses lesser complex charting systems, and the monitoring can be done at an interval of around 1 to 4 hours.
Price movementTrack short-term price movement during the dayA track price movement in a relatively long time period;

Conclusion

As can be seen from the above explanations that both the categories of trading are quite different in nature and serve essential roles in the portfolio return formulaPortfolio Return FormulaThe portfolio return formula calculates the return of the total portfolio consisting of the different individual assets. The formula is computed by calculating the return on investment on individual asset multiplied with respective weight class in the total portfolio and adding all the resultants together. Rp = ∑ni=1 wi riread more. It is of paramount importance to realize that a day trader profits more in percentage terms vis-à-vis a swing trader in case of a smaller sized trading account. On the other hand, a swing trader can maintain their percentage returns as the trading account grows.

To sum it up, a day trader’s day can be fast-paced and adrenaline-pumping which needs them to make quick decisions and manage fast-paced trading with lots of volatility. In contrast, a swing trader looks at a bigger picture and makes a very calm and composed decision in trading and maintains longer holding period vis-à-vis a day trader. As such, it is vital to understand the various facets of the two to apply them successfully in portfolio management. I hope the article helps you to decipher the two trading strategies.

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