Within the complex and vast world of trading, you can use several tools to maximise your chances of making a profit. Professional traders will use different trading strategies depending on their mindset to approach the trading world. It is important to distinguish which bracket you fall into between swing trading vs scalping, as you can start to plan your approach around specific methods and trading psychology. Swing trading vs scalping are the two types of trading we will examine in greater detail today.
Firstly, we will examine what both types of trading entail to consider the key differences between the two. Swing trading vs scalping is an interesting discussion as they both consist of two strategies. Swing trading is commonly determined as a strategy that plays out over a longer period. A long period in trading can feel like 30 minutes, depending on what position you have opened! However, for the sake of argument, this will usually be a few days but could also play out over a few months.
What Is Swing Trading?
Swing trading is one of the most common forms of trading, and as a beginner, it is a good starting point, including in markets such as forex and cryptocurrency. Forex trading usually involves professional traders employing swing trading methods. It is a market that has seen an influx of retail investors over the last year.
Scalping is also a popular forex trading method in which traders from all levels of the trading pyramid involve themselves. When we say trading pyramid, we mean the small number of large institutions at the top that trade trillions of dollars per day on forex markets across the globe.
Retail investors are everyday investors who tend to have the smallest effect on the market. They will usually trade anywhere between a few Euros or dollars to potentially a few hundred. Whilst this may seem like a lot, it is a drop in the ocean compared to some of the gigantic financial institutions that reside at the pinnacle of the market.
As detailed in the chart below, swing trading involves a sizeable amount of chart analysis. You are not only looking to trade the asset but also the movement and shape of the chart.
What Characteristics Differentiate Swing vs Scalp Trading?
There are key characteristics that set apart swing trading vs scalping. The focus of swing trading is longer when breaking down the chart pattern and market sentiment. Scalp trading is usually between 60 seconds and 15 minutes, and swing trading will be between 24 hours to 7 days.
In addition, swing traders will follow the market sentiment. They will execute their trade if the market wants to break out and move upwards. If it begins to reverse, they will then sell their asset. Whilst swing trading vs scalping bares this similarity, scalp traders will execute their position quickly, and swing traders will often hold out to squeeze more profit out of their trade.
Whilst other more experienced traders may use these movements to open short or long positions, swing traders are happy to buy and sell for profit. Ultimately, this is the aim of any trade and selling your position in a higher position than when you went into the market is where the focus should lie. Trend trading is a specific type of strategy, and swing trading has additional key criteria that set it apart when it comes to swing trading vs scalping.
Swing trading allows beginner traders to understand how a market behaves over several days. Trading is a steep learning curve; even if you begin to understand charts and market indicators, your capital is always at risk, and you may lose all of your initial investment.
What Should I Look Out For During Chart Analysis?
If the market shows signs of consolidation or is beginning to show support after a sharp price correction, this could signal an entry point for a swing trader. Swing trading vs scalp trading contains a variety of benefits and negatives. However, a period of consolidation is usually a good sign for either type of trader as they can look to profit off the gains that may be on the horizon. Conversely, volatility can signal opportunity.
Although, you must be careful, as certain markets and assets will have sharp price corrections. cryptocurrency is considered the most unpredictable asset to trade. Therefore, you must conduct the necessary market research before entering a trade. Your capital is always at risk, even if you are certain that your chart analysis is pointing in one direction. Swing trading vs scalping offers stark contrasts. One thing that all markets have in common is that your capital is always at risk.
Specific chart analyses such as Fibonacci triangles or extensions will help supplement your analysis and paint a clearer picture. Many factors drive an asset’s price up and down. Some are external factors, such as the collapse of multi-billion-dollar exchanges.
When Can Swing Trading Be More Beneficial?
If you are trading with a full-time job, then swing trading offers a better avenue as you don’t need to keep a laser-focused eye on the incremental price differences like a scalp trader has to. You can enter the market and wait for your asset to hit your chosen price. There isn’t a need to watch the charts, as you can use risk management strategies to set up take profit and stop losses.
If you are swing trading vs scalp trading, you can set an automatic buy and sell order at each end of the trade to ensure it goes through effectively. Not only does this allow you to go about your day without having to examine charts, but it also removes emotions from trading.
Swing trading requires much more patience than scalping, as your position is live in the market for far longer. Being able to ride the wave of a rising asset is the ideal position a swing trader wants to find themselves in. A scalp trader will benefit more from stormier waters and higher volatility. Swing trading has pros and cons compared to other types of trading, such as day trading.
However, when it comes to swing trading vs scalping, the benefits are down to your personal preferences as an individual and what you prefer to utilise in your trading psychology.
Swing trading vs scalping pitches the two trading types as competitors. This is far from the truth of the matter. Both types of trading are highly advantageous if you learn how to apply them correctly. There are a vast number of professional traders in the field who will use both types of trading in their trading psychology.
However, there are important differences to point out. The first one is that scalp trading is usually a market reserved for traders with some experience. Expertise is a vital skill when discussing scalp vs swing trading as it requires a keen eye for the market, and you can enter and exit your position in a shorter length of time than it has taken you to read this section of the article. The goal is to rack up several smaller profits instead of one long well-timed trade like a swing trader.
When examining a chart, scalp traders use a much smaller period, and they try to take advantage of multiple entries and exit points throughout a small amount of time, like one hour. The hyper analysis and rate of trade execution are the two key differences that set apart scalping vs swing trading.
Scalp trading relies on buying and selling your asset when there are small price changes. It usually involves many quickfire trades, usually with a lot more capital. Therefore, the risk appetite can be higher, but the potential for negative emotion to play a crucial role is minimised.
How To Minimise Risk
Due to the time spent active in the market, the overall risk is lower if we’re looking at scalp vs swing trading. Some scalp traders will have their target hit within 60 minutes and clock off for the day. For others, it may take much longer. Some traders who use this type of trading as their chief operating tool will often make hundreds of trades per week. Many traders who employ this strategy may go days or weeks, losing money. This is due to the volatility of the market. Ultimately, there are no guarantees in trading. Your capital is always at risk.
Risk management is a key component of any trading strategy, and one way to effectively manage risk is to set up a system called dollar cost averaging. This means you buy your asset as the price corrects on the way down so that you can buy more for a cheaper price, and your average price per unit is lower. You can also set up automatic sell orders in the event of a serious market crash.
How To Start Swing Trading Vs Scalping
There are an increasing number of avenues into trading for retail investors, even those in full-time employment. Whilst this can signal great opportunity, it is also imperative that you approach live markets with serious caution and respect. Investing is not akin to gambling. However, if you do not understand the market, this is dangerous. You shouldn’t be investing in something you don’t understand; this is essentially gambling.
The internet has provided us with many opportunities in trading, and it isn’t only from a practical perspective of being able to trade effortlessly from our mobile devices. An increase in technology implementation within the sector allows you to set stop losses and take profit limits without being glued to your trading desk.
What Type Of Markets Use Swing Trading Vs Scalping?
The biggest trading market by 24-hour volume is the foreign currency exchange market. It is shortened to forex within the industry. This is the term that the vast majority of people in the field use. We have already touched on forex markets. However, due to the trillions of dollars traded on this exchange daily, many traders use swing or scalp trading methods.
The stock market is arguably the most renowned international trading market. Many companies that millions of us use daily operate on the stock exchanges. This means that hares in the company are available to buy and sell. Concerning swing trading vs scalping, as they are both popular methods of trading in the short term, the stock market can be the ideal place for traders to operate.
This is because stock markets operate strictly within business hours, so for a scalp trader, having the ability to use this fast-paced method of trading strictly within business hours can be appealing.
Scalp meaning stocks, gives scalp traders the ability to operate within specific time frames and certain parameters. Knowing you have a fixed timescale and rigid criterion to adhere to means scalp traders can benefit from knowing when the market might peak and how to time trades throughout the day.
Some prefer it to forex trading as the foreign currency market is open 24 hours a day due to the nature of currency pairings. Whilst this offers flexibility, other variables can also be considered when trading on a market that doesn’t close.
A commodity market is unique as it involves the sale of a tangible product. Although cryptocurrencies such as Bitcoin have been classified as a commodity, many analysts believe it is part of a new and emerging digital asset class. In the next section, we will discuss cryptocurrencies such as Bitcoin in more detail.
Tradeable goods such as gold, silver, oil, wheat and many other goods are considered commodities. Although you can trade gold and silver indirectly through ETFs and shares in companies that mine the precious metals, there is still a market to either swing trade or scalp trade these assets.
However, gold is primarily seen as a hedge against inflation and economic uncertainty, so it sees less short-term trading as it is considered a store of value. Scalp trading vs swing trading tends to see less activity in commodity markets due to the nature of the industries defined within these markets.
Swing Trading Vs Scalping – Conclusion
Choosing between swing vs scalping trading can take time and effort. They are not mutually exclusive either. As we have already discussed today, you can learn how to use both and implement both into your trading psychology and utilise them effectively to your advantage.
Scalp trading is a more refined strategy for traders who are more familiar with market trends and how markets can operate. Many successful swing traders learned their trade by starting as swing traders and learning the specifics of chart analysis and market volatility.
Swing trading vs scalping are strategies that have been successfully implemented for decades by a wide variety of professional traders worldwide.
Swing trading is more suitable if you have a full-time job and can’t keep a meticulous eye on the market. Scalping will benefit you if you can keep an eye on the market whilst having the ability to keep your nerve during short-term bursts of high concentrations of trading. Swing trading could be ideal if you want to find out how the market works and prefer a longer-term strategy. Essentially, the most important questions to ask yourself are:
· What strategy would you feel most comfortable with?
· What benefits you personally?
If you can answer these questions with conviction, you have already begun your journey into trading.