‘Trading’ goes beyond simply buying and selling. As they say, there is more than one way to skin a cat. Therefore, there are different trader profiles, the two most popular of which are day trading and swing trading (alternatively, check out our comparison between scalping and day trading).
Is there a massive difference between day trading and swing trading? Of course! There is more than one distinction when you look at trade frequency, time frame reference, and commitment, among other elements.
So, consider this article your definitive day trading vs swing trading guide.
What is day trading?
Let us look at the first part of our day trading vs swing trading discussion. The former refers a style of intraday speculating in the markets. This means you seek to capitalise on opportunities within the day and never beyond.
This is why day traders never hold their orders overnight or into the next day. It is common for these individuals to maintain positions for a few hours at specific sessions, a cited benefit when comparing a swing trader vs day trader.
Not needing to hold your positions overnight offers some unique advantages (which we’ll cover later). Investors using this approach will analyse smaller time-frames starting from the 1M to the 1HR chart. Another distinction is day traders tend to have lower risk-to-reward ratios.
In simple terms, their profit targets are smaller than their counterparts since they don’t hold their positions for long. This means they will execute more market orders to extract maximum profit given the shorter time horizon.
Lastly, in observing a day trader vs swing trader, fundamental analysis matters less with intraday movements (aside from news events). This is because the effect of most fundamentals often materialises in the long term, at least over several days.
What is swing trading?
Now we’re onto the second part of our day trading vs swing trading comparison. Swing trading is a medium-term methodology where one maintains their positions for several days to weeks. Unlike a day trader, a swing trader is content with holding orders overnight to take advantage of extended price moves.
Intraday fluctuations against their orders are irrelevant since these investors picture where the market will be over a few days or longer. Another distinction when considering whether to day trade vs swing trade is the execution frequency.
Swing traders open only a handful of positions in a month, preferring a more patient and slower approach focusing more on quality than quantity. Therefore, the time commitment is much less, allowing the individual to do other things outside the charts.
Another big difference between day trading and swing trading is the risk-to-reward ratio. While day traders have smaller targets, it’s common for swing traders to aim for several hundreds of pips at a time.
Day trading vs swing trading: technical differences
Let’s look at the main distinctions of day trading vs swing trading for this section in more detail. Here is a summary of the differences in a table.
|DAY TRADING||SWING TRADING|
|Number of weekly transactions||10+||No more than 5|
|Chart references||1M to 1HR time frames||4HR to monthly time frames|
|Risk to reward ratio||Usually not more than 1:3||Min. 1:3 and more|
|Relevance of long-term fundamentals||Less||More|
Number of weekly transactions
The first major difference looking at swing trading vs day trading is the frequency. An average day trader may open at least three positions daily. On the other hand, most swing traders get away with executing up to five times a week.
This category ties into the last one. The higher execution frequency of day trading easily tells us it’s more time-consuming and may not be suitable for people with other commitments like full-time jobs. Time engagement is one of the red flags when deciding to day trade vs swing trade.
Day traders have to spend several hours at their charts looking for opportunities. Granted, they are meticulous when participating, picking the most favorable sessions for their strategies. Yet, the fact remains; you need at least a few hours of uninterrupted attention.
On the other hand, a swing trader may only check their charts a few times weekly or very occasionally throughout the day.
So, it is possible to swing-trade the markets while working a nine-to-five, running a business, or engaging in any other activity. Meanwhile, it is much more difficult to do any of these things as a day trader.
The time frame you observe the most significantly impacts how you analyse and the predictive power of your set-ups. In viewing day trading vs swing trading, we know that day traders stay on the lower time frames.
We refer to these charts as ‘noisy,’ meaning they offer a somewhat distorted or erratic picture of the market. How so? It simply means that these time frames present too much information, which is harder to process.
They reflect the minutest corrections in price, even if these may not be significant. Therefore, when studying a day trader vs swing trader, you are likely to have more false signals on the latter.
Let us demonstrate with an example by looking at two time frames (15M and 4HR) on EUR/GBP, representing seven days of price action. Notice how the 4HR chart appears much smoother with fewer candles than the 15M.
Looking at cleaner time-frames is a massive benefit for swing trading. Less noise brings about more clarity, leading us to the next point.
Higher time-frames offer a bigger picture or a bird’s eye view of market movements that you cannot observe on smaller ones.
So, in deciding to swing trade vs day trade, the former offers less noisy charts that provide an edge for predicting long-term price action.
Risk to reward ratios
Every opportunity in the markets is a question of how much one is willing to put down for a potential gain, which needs to be several times higher than the risk. A simple RR (risk-to-reward ratio) ratio is 1:2. This means you plan to make $2 for every dollar you risk.
The smaller the RR ratio, the more times you need to trade to make a profit. Also, tighter ratios have shorter targets, fitting perfectly with day traders who don’t hold their positions for long periods.
On the opposite end, swing traders tend to have higher RR ratios, meaning they need to execute less to profit. While the target distances are longer, you can only achieve them over days or weeks.
Between day trading vs swing trading, one style doesn’t need you to be a night owl. Being comfortable holding orders overnight is essential as a swing trader. Yet, it comes with a few risks.
- The rollover period (the start of a new trading day) has much higher spreads, which may result in you having a floating loss briefly.
- Another fear for some is potential weekend gaps. Although these don’t happen a lot, they are something to consider. Day trading wins in this regard because there is no overnight risk. Yet, this comes with a trade-off of not realising maximum gains.
- Lastly, depending on the interest rate differentials and positional direction, a swing trader may incur negative swaps that will debit from their account.
Relevance of long-term fundamentals
A somewhat overlooked difference between the two styles is the significance of fundamental analysis. We mentioned that news events, especially those with the highest impact (e.g., unemployment numbers), are relevant for day traders.
They also play a role for swing traders but to a lesser extent since they will hold their positions even when a high-impact announcement occurs. Yet, not all fundamentals produce the same effects.
For instance, job figures offer a short-lived, knee-jerk reaction before the market returns to normality. Yet, the impact of interest rates tends to play out over a long period. So, a swing trader may need to consider certain long-term fundamentals in their analysis.
Meanwhile, day traders only need to worry about what’s happening now because, again, they don’t hold their positions above a day at a time.
Studying long-term fundamentals may be complex and time-consuming for some swing traders.
Day trading vs swing trading: pros and cons
Let us now summarise the benefits and drawbacks of day trading vs swing trading, having looked at the differences.
Pros and cons of day trading
|Higher number of set-ups offered||More time-consuming|
|Profits over shorter periods||May expose traders to unfavorable market conditions|
|Allows individuals to specialise in a handful of pairs||Can lead to overtrading and even trading addiction|
|No overnight risks||Exposes investors to noisy time frames|
|Doesn’t offer long-term price movements|
|Higher trading costs (spreads/commissions)|
Pros and cons of swing trading
|Less stressful and time-consuming||Needs a tremendous amount of patience; fewer number of transactions|
|Less trading fees or commissions due to the lower execution frequency.||Potential exposure to negative swaps|
|Offers higher risk-to-reward ratios||Overnight risk (wider spreads, weekend gaps, etc.)|
|Involves less noisy charts||Long-term fundamentals may be necessary, meaning extra analysis is involved|
Day trading vs swing trading: which is more profitable?
A common question many people wonder in studying day trading vs swing trading is profitability. Which offers more bang for your buck? Ultimately, it boils down to risk and reward. There is a perception that day traders take on more risk, but this isn’t true.
Trading more times during the day doesn’t increase your chances of losing substantial money unless, of course, you are reckless. But opening more positions doesn’t correlate to higher gains.
The extent of profitability in any system is based on risk-to-reward and not the frequency of execution. When choosing to swing trade vs day trade, the latter offers the chance to capitalise on a price movement’s maximum depth.
In simpler terms, you can get more pips. Yet, your risk-to-reward ratio will determine your returns and whether they can outpace a more frequent trader.
Day trading offers higher monetary potential in the short term, but you generally need higher risk to achieve it. On the other hand, swing trading is more profitable in the long term, although it takes much more time to realise these gains.
As with anything, what you decide is up to your individual preferences, considering the risks and benefits involved. By now, you should have a detailed understanding of comparing day trading vs swing trading to make an informed decision.
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