Which is better, day trading or swing trading? What are the advantages of day trading vs swing trading? What are the advantages of being a Day trader vs a swing trader?
In this post, I will explain the difference between day trading and swing trading and also give you the advantages and the disadvantages of both.
What Is Day Trading?
This is the definition of day trading in the context of forex trading: buying and selling of currency pairs over a one day period with the objective of profiting from the price moves that is made within that day.
Day trading is also known as ‘Intraday trading’ where day traders are usually entering and exiting trades withing the same trading day. This simply means that no trade is carried overnight.
So is forex scalping day trading? The answer is yes… forex scalping is an intra day trading technique that fits into the day trading category.
So for day traders, they are much more interested in quicker and smaller profits.
Day traders do all their trading during the day when the day is over, they shut shop (stop trading).
7 Advantages of Day Trading
So what are the advantages of day trading then? Well here is a list of the 7 I can think off:
- day trading is about taking smaller profits targets therefore if you take smaller profit targets then the risk per trade you take are also small.
- a successful day trader can use the power of compounding to increase the overall profits because of the many trades that are placed each day.
- a day trader can make money a lot faster
- some day traders like day trading just because of the rush.
- a day trader is always actively participating in the market.
- Because day traders close their trades at the end of the day, they are then able able to take advantage of interest earned in their account.
- They limit the risk of leaving their trades running overnight because anything unexpected can happen in the market overnight like bad economic news etc that can cause the price to fluctuate wildly and wipe out their profits or even their forex trading accounts
9 Disadvantages of Day Trading
- Day traders trade a lot therefore their transaction cost are much higher because of the spread and this can impact your profits.
- As a day trader, you can loose money faster.
- Day trading can be very difficult to learn and master and it can be quite difficult for many to become successful.
- As a day trader, you need to spend a lot more time in front of you computer waiting for setups and therefore it is really time consuming and if you have a full time job, day trading will not work for you.
- Day trading is a fast pace activity and day traders need a lot of concentration therefore it can be very stressful.
- As a day trader, you put your trading account into a lot more risk because you are taking many trades are day and therefore you can lose a lot of money in a very short period of time.
- In day trading, a small mistake can result in a huge loss. For example, if you have 20 losing consecutive trades in a row during the day and then on the 21st trade, you trade a huge contract to recover your 20 loses. But that trade turns into a huge loss. So you see, day trading requires a lot of discipline, proper money management and having a good risk:reward profitable trading system.
- Because day traders just focus on the very shorter period, they ignore the bigger trends that cause big market moves and therefore it can be a bit hard to predict the market.
- Day trading can become addictive and if a day trader is not careful, this can almost make day trading like gambling.
What Is Swing Trading?
Swing trading is different from day trading because when swing traders trade, they leave their trades running for more than 1 day to even a month or more.
So swing trading is a short to intermediate term trend following trading technique.
Generally, swing traders look for minor trend reversals to enter trades in the direction of the main trend.
For example, in a main uptrend trend, swing traders will enter on the minor pullback in anticipation that price will continue back in an uptrend.
Therefore, trend reversals, retracements, fibonacci levels, support turned resistance and resistance turned support levels, traders action zone levels are important levels where swing traders look to enter trades.
Swing trading is typically a short to intermediate term trend following system lasting anywhere from 1 to 30 days. Traders who swing trade typically look for trend reversals & retracements for their entry/exit points.
8 Advantages of Swing Trading
These are the reasons that make swing trading appealing to many forex traders:
- with swing trading, it is easy to manage take profits and stop loses because you can actually place your stop loss a bit further away from the market price to avoid getting stopped out prematurely and also your take profit targets a place a bit further away so that your risk to reward ratio are 1:2 or higher.
- swing trading is much easier to learn and do than day trading
- trading transaction costs due to spread are much lower than that of day trading because of less trades placed.
- you have a lot more time to analyse trades and then take trades and therefore swing trading can suit someone who has a day job.
- swing trading does not take a lot of your time…you can place your trade and walk away instead of baby sitting your trade like in day trading.
- Swing trading is much less stressful than day trading.
- Profits made a much larger than in day trading because you let your trades run of more than 1 day so the chance of increased profit much greater than in day trading.
- Swing trading allows swing traders to ride out the trend for maximum profit extraction using this best trailing stop technique
5 Disadvantages of Swing Trading
- Some forex traders can find swing trading difficult to learn and do or it may not fit the trading personality of the trader.
- swing trading can be time consuming especially when you are analyzing your trade setups and you have to wait a long while before your trading setups happen so that you can take your trade.
- swing trading is not a set and forget system, you have to monitor your trades daily to move stop loss to break even, move trailing stop etc.
- a swing trader can get so attached to a trade because he may be in that trade for a while and instead of exiting and taking profits, his attachment can cloud his judgment
- As in day trading, trading discipline and risk management as well as keeping emotions in check are very important. It is not uncommon for swing traders to exit on a retrace or trend change only to have the market immediately change back and head in the original direction and to be quite honest, this is sometimes very frustrating.
So Which Is Better Day Trading Or Swing Trading?
I have given you the pros and the cons of day trading as well as swing trading. You can make your own choice according to those information given above.
But seriously, which trading technique is better, day trading or swing trading?
For me, I prefer swing trading and there will be times I will day trade but I like looking at the big picture and for me, swing trading is ideal for that.
I’d rather be making 100 pips 200 pips profit per trade than 10 pips per trade and swing trading provides that opportunity.
That’s what I like. For you, you may like day trading. So the answer to this question is this: its really up to you to decide.
And if you are wondering, who is more profitable, swing trader or the day trader? The answer is this, both can be profitable.
You see, a day trader can be more profitable and successful than a swing trader. The secret? Manage your trading risk and be disciplined.
Similarly, a swing trader can also be successful and the secret? The same as above.
Summary
So whichever option you choose, swing trading or day trading is really irrelevant. Both options will make you money, Its how you manage your trading risk, its how disciplined you are, its how you manage your emotions etc that makes the difference.
When FXCM analysed 12 million live trades to find out the number 1 mistake forex traders make, it had nothing to do with day trading vs swing trading. As a matter of fact, the number 1 mistake forex traders make had nothing to do with trading systems.
Heck, trading systems were right more than 50% of the time in getting winning trades! Which simply means that any forex trading system can potentially make you money in forex.
But these traders,even though, they were more right more than 50% of the time, they were still making a loss, why? Because, they were losing more than they were winning!
This was a risk management problem.
This tells you that if there’s one thing that can make you the best forex trader you can ever be is to be faithful student of risk management.