Difference Between Day Trading and Swing Trading

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 Infographics

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.

Day Trading vs. Swing Trading Comparative Table

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.

This article is a guide to Day Trading vs. Swing Trading. Here we discuss the top difference between them and their infographics and comparative tables. You may also have a look at the following articles –

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