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 trader, 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 trader 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 in order 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.
What is Swing Trading?
A swing trader, on the other hand, buys or sells securities and holds them for time horizon which might vary from few days to several weeks. A swing trader also gets into buy or sell position based on technical, fundamental or quantitative valuation and the trade might take longer to work, unlike day traders.
A swing trader believes in the accumulation of gains and losses in a more smooth and slow manner as compared to a day trader.
However, there can be occasions where a swing trader can also have certain swing trades that result in big gains or losses in a very short period. A swing trader usually does not take up trading as a full-time job.
Day Trading vs Swing Trading Infographics
- A day trader buys or sells securities and liquidates the positions within the same day, while a swing trader maintains the positions for a longer period which varies from few days to several weeks.
- A day trader on average invests around two hours each day to monitor price movements in their portfolio, while 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 take quick decisions and manage fast-paced trading, while on the other hand, a swing trader needs to be calm and take 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 and the monitoring can be done at an interval of around 1 to 4 hours.
Day Trading vs Swing Trading Comparative Table
|Basis||Day trading||Swing trading|
|Holding period||All the positions are either bought or sold and eventually liquidate the positions on the same day||Holding Period is longer which varies from a few days to several weeks|
|Valuation technique||A day trader’s positions are based on a various analysis which includes technical, fundamental or quantitative valuation technique||A swing trader also gets into buy or sell position based on a technical, fundamental or quantitative valuation technique|
|Level of commitment||A 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 a 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 trait||Needs to be dynamic as a day trader’s day can be fast-paced and adrenaline-pumping which needs them to take 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 monitoring||Uses advanced charting systems which may be designed in intervals of 1, 5 or 30 minutes as a day trading requires very frequent monitoring||Uses lesser complex charting systems and the monitoring can be done at an interval of around 1 to 4 hours|
|Price movement||Track short-term price movement during the day||A track price movement in a relatively long time period|
As can be seen from the above explanations that both the categories of trading are quite different in nature and serve important roles in the portfolio return formula. 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 take quick decisions and manage fast-paced trading with lots of volatility, while a swing trader looks at a bigger picture and takes a very calm and composed decision in trading and maintains longer holding period vis-à-vis a day trader. As such it is important 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.
This has been a guide to the Day Trading vs Swing Trading. Here we discuss the top difference between them along with its infographics and comparative table. You may also have a look at the following articles –