Day trading and swing trading are two of the many trading styles that active day traders use. While both these styles are used to make profits from short-term stock movement, there is a lot of difference separating them from each other. To help trading enthusiasts get a clear understanding of both trading styles, Kimberly Torres agreed to explain both in the simplest way possible.
Kimberly Torres is a professional day trader who has clocked over 7-figures profits since she started day trading. Besides having exceptional day trading knowledge, she also has a deep understanding of the different available trading styles. So let’s jump straight to the topic’s meat and understand day trading, swing trading, & their fundamental differences.
What is Day Trading & Swing Trading?
In day trading, a person can make numerous trades in a single day. Day traders try to generate small profits on multiple trades that pile up to become a significant number. While day traders work independently and enjoy a flexible work schedule, they have to compete with high-frequency traders, many experienced market professionals, and hedge funds. Day trading can be rewarding for those who know how to churn profitable trades consistently.
Swing trading is done by identifying swings in different commodities, stocks, and currencies over a period of days, weeks, or even months. As a swing trader, you or other traders have to keep overnight positions and trade them off on identifying a better opportunity. In swing trading, you can either earn big or lose big.
Basis of Differences
While both swing and day trading come under the “short-term” trading category, they are quite different from one another on the following points:
- Tools of the Trade
Day traders have to rely on sophisticated trading platforms, top-rated charting systems, and other essential tools based on their requirements. On the other hand, swing traders can conduct their trading using a standard brokerage account.
- Duration of Position Holding
Day trading doesn’t allow keeping overnight positions. A day trader has to close all the positions before a day’s trading session ends. In swing trading, you can keep the positions for days, weeks, or even months (in some cases).
- Constant Monitoring
Day traders have to keep themselves glued to several screens during trading hours. As all the trades have to be closed within the same day, day traders have to constantly monitor the price fluctuations to identify one good opportunity. Swing traders are lucky in this regard, as they don’t have to keep their eyes glued to the different screens throughout the trading hours. In swing trading, you usually wait for a few days before trading the positions, so there is no need for constant monitoring.
- Quantum of Profits/Losses
Talking of the quantum, day traders try to generate small profits from a dozen trades, whereas swing traders try to “swing” big profit from a single trade. To generate either big or small profits, you need to have a well-drafted trading plan in hand.
- Option to Have a Day Job
Day trading requires undivided attention, so a day trader cannot manage to invest time elsewhere during the trading hours. Contrarily, swing traders can manage their day job along with swing trading. It is because swing trades don’t have to be closed on the same day, and the trader can wait for a few days or even weeks before finally trading it off.
Both swing and day trading have their pros and cons. You can choose day trade or swing trade, or even both, depending on your lifestyle, preference, and skills.