Swing trading and day trading are similar approaches, but there are several key differences. The main difference is the frequency of trades. Both styles can lead to profits, but they depend on the amount of available capital, time to manage trades, your trading psychology, and the market you are trading in.
What is the difference between swing trading and day trading?
Day traders open and close several positions within a single day. In contrast, swing traders make trades that last for several days, weeks, or even months.
Swing trading is still considered a relatively fast-paced form of trading but involves holding positions over several days, weeks, or months. As a result, profits and losses accumulate more slowly in swing trading compared to day trading. However, some winning swing trades can yield significant profits or large losses quickly.
Suppose you are a swing trader risking 50% of your capital on each trade to achieve 1% to 2% profit on winning trades, and let’s say you earn an average of 1.5% on winning trades and lose 0.5% on losing trades.
You make six trades a month and win half of those trades. So, you can make 3% of your account balance in an average month, net of fees. Over a year, that amounts to about 36%, which is a good figure but offers less potential than a day trader’s potential.
Day trading attracts traders looking for quick accumulation of returns. The term “day trading” comes from the fact that traders typically buy and sell securities within the same day, often doing this several times a day.
Note: As a general rule, day trading has more profit potential compared to swing trading, at least in smaller accounts.
In the day trading community, it is common to follow the 1% risk rule. This rule states that you should not risk more than 1% of your portfolio on any single trade. For example, let’s say you are a day trader risking 0.5% of your capital on each trade.
If you lose, you will lose 0.5%, but if you win, you will make 1% (a risk-reward ratio of 2:1). Let’s also assume you win half of your trades. If you make six trades in a day—on average—you would add about 1.5% to your account balance each day, net of trading fees. Even if you make 1% a day, your account would grow by more than 200% over the year, without compounding.
Time Horizons
Swing trading is a strategy that involves making trades over more than a few days, weeks, or months. The goal is to capitalize on short to medium-term profits from price direction changes in the market.
Day trading involves multiple trades within a day or two to capture as many small profits as possible from daily price changes.
Time Required
Both day trading and swing trading require time, but day trading typically takes more time.
Day traders usually spend at least two hours a day trading. In addition to preparation time, reviewing charts, and executing trades, you should spend at least three to four hours at the computer. If you decide to trade for more than two hours a day, your time investment will significantly increase and become a full-time job.
Note: Both types of trading can be time-consuming—swing traders may conduct more research while day traders engage in more trading.
Swing trading may take less time for active trading. For instance, if you swing trade using a daily chart, you could find new trades and update orders on existing positions in about 45 minutes in the evening. These activities may not even be required every night.
If
I conducted trades that last for several weeks or months, so you might only need to search for trades and update orders once a week, reducing your time commitment to about an hour a week instead of every night.
How to Trade
Since swing traders have much longer time horizons, they can use their online brokerage accounts to create positions and trade. They experience much less time pressure and don’t need to react within seconds to price changes.
To start swing trading, you will need to open an account and fund it with a broker. Once your account is funded, you can start placing
Source: https://www.thebalancemoney.com/day-trading-verus-swing-trading-4134456
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