Day Trading vs Swing Trading

Updated on April 15, 2024
Article byWallstreetmojo Team
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Day Trading and Swing Trading

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

Day Trading vs Swing Trading

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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 trading categories, i.e., day trading vs. swing trading.

Nevertheless, the eventual aim 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: to generate profits. However, the holding period and the technical tools 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 consider to select a conducive trading strategy. These factors include (not exhaustive) time invested, personality traits, 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 daily. A day trading transaction is executed to profit from price divergences during the day due to various market information and sentiment. For example, the trader might buy or sell positions based on technical, fundamental, or quantitative valuation.

  • A day trading doesn’t hold positions overnight (i.e., open and multiple close positions within a single day) and looks to generate profit through trading securities.
  • A day trader usually devotes around two hours every day to monitoring and tracking 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?

On the other hand, a swing trader buys or sells securities and holds them for a time horizon, which might vary from a 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 accumulating gains and losses more smoothly and slowly than 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. Therefore, a swing trader usually does not take up trading as a full-time job.

Day Trading vs Swing Trading Explained in Video

 

Day Trading vs. Swing Trading Infographics

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
  • 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 a 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 returns.
  • A day trader uses advanced charting systems, which may be designed in very short intervals, which vary between 1 to 30 minutes, while a swing trader uses less complex charting systems. The monitoring can be done for around 1 to 4 hours.

The differences are prominent and can be easily spotted by taking examples of charts taken from TradingView.  Given below are two charts, one related to day trading and the other explains swing trading. The day trading chart below, is a 15 minutes chart because for this kind of trading, this time frame is ideal. The price movements are clearly shown using candlesticks and it is necessary for the trader to identify the points of entry.

tradingview

Source

Therefore, in day trading it is necessary for the trader to be able to identify these entry points during the trade. In this kind of trading, the trader has to continuously monitor the price movement and always keep a stop loss in place as per the risk appetite of the trader. This will protect from sudden adverse price movement and control or minimize the loss amount.

Next comes the swing trading chart of Sapphire Foods, and this is a weekly chart. Here itself the main difference is visible, where the day trading chart is related to a particular day or an hour or 15 minutes. But for swing trading a longer timeframe is needed. In the chart, the target prices for earning profits are clearly mentioned, which are the various resistance levels that the price may face as it rallies for an uptrend, along with the stop loss and the possible entry level. This entry level is the resistance level that has been repeatedly tested but finally has given a positive breakout. This breakout is a confirmation that the trader may enter at this point, even though it is wiser to use other indicators and test the level before taking a call on final trade.  However, the risk-return ratio in this case is 3:3, which means that both are at similar levels. Therefore, the trader will actually take a good amount of risk if they go for the trade right now.

Sapphire Foods

Source

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 variety of analysis which includes technical, fundamental, or quantitative valuation techniques.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 morerequires 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, both trading categories are quite different 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 the case of a smaller-sized trading account. On the other hand, swing traders 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 requires them to make quick decisions and manage fast-paced trading with lots of volatility. In contrast, a swing trader looks at a bigger picture, makes a very calm and composed decision in trading, and maintains a longer holding period vis-à-vis a day trader. Therefore, 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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Comments

  1. kamran Ghaemmaghami says

    very useful and clear explanations. thank you.

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