A choice between day trading vs swing trading is one many investors face when deciding on what their basic approach to stock trading will be.
Day traders and swing traders share the fact that both trade relatively short-term trading timeframes.
In that respect, they are both dissimilar from long-term “buy and hold” investors who look to maintain stock investments for years or even decades.
However, there are significant differences between day trading and swing trading.
The most important determinants in choosing your own trading approach are what kind of trading (A) you’re most comfortable with and (B) best matches with your investing goals.
Other factors include the time you have available for trading and how much trading capital you have.
This article gives you a solid, side-by-side comparison of day trading and swing trading that can help you make the decision on your personal stock market trading strategy.
Day Trading and Swing Trading Time Frames
The key distinguishing characteristic of day traders is that all their trades are intraday trades. They won’t be holding positions overnight. Any trades that they enter during a trading session are closed by the end of the trading day.
Some day traders use a scalping approach, entering and exiting trades very quickly, within just a few minutes or even seconds – looking to accumulate lots of small profits. Other day traders have a bit longer time horizon and may only make one or two trades per day. They might, for example, buy a stock in the morning and sell it in the afternoon.
Swing traders are also short-term traders rather than long-term investors but trade a notably longer timeframe. Swing traders generally tend to hold a trading position they opened based on swing trading alerts for several days to a few weeks. They are looking to make money trading stocks by buying near swing lows and selling near swing highs that occur during an ongoing trend.
Day Trading vs Swing Trading – Profit Goals
Day traders are looking to earn a living from their trading activities. Therefore, they are looking to make substantial investing profits over the course of a year. A day trader typically aims to increase their investment capital by 1% or more each trading day. That translates to aiming for yearly gains of 200%-plus.
Swing traders also seek to generate profits well above the yearly average gain of the S&P 500 Index, which has historically been around 8-10%. They usually aim for higher profits per trade than day traders do. However, because they make significantly fewer trades, their profit goal may be only 3-5% per month – 36-50% annually.
Swing Traders and Day Traders – The Time Required for Trading
Day traders are looking to make profits on multiple trades – up to 10 or more – during each trading day. Therefore, they have to scan the market for possible trades and monitor the trading action continually during market hours. For most day traders, trading is their job. Some might have part-time employment but engaging in day trading essentially excludes holding a regular nine to five full-time job.
With swing traders, trading is much less likely to be approached as their primary source of income. Their trading style does not require constant monitoring of trades throughout each trading session. Thus, they can easily maintain full-time employment while aiming to supplement their income with trading profits.
Day Trading vs Swing Trading – Analysis Timeframes
Both day traders and swing traders are much more likely to use technical analysis rather than fundamental analysis. Both are looking to enter and exit trades based on short-term price levels of support and resistance and short-term trends. They both tend to take trading positions based on technical indicators such as moving averages, pivot points, and trend lines.
Where they primarily differ is in the timeframe on which they focus their analysis. Day traders, especially scalpers, view various technical indicators on charts of very short timeframes – such as one-minute or five-minute charts. They rarely base trade entries or exits on price action as reflected on any chart timeframe longer than the hourly chart.
Unlike day traders, swing traders typically use daily or weekly charts in conducting technical analysis and aiming to identify existing trends and support or resistance levels for stock prices.
Tools Needed for Day Trading vs Swing Trading
Swing traders can usually manage their trading activities just fine with only a brokerage account and the charting software supplied by their broker.
The nature of day trading generally requires more sophisticated trading tools. To quickly identify multiple trading opportunities throughout the trading day, day traders need the aid of a good stock screener that continually scans the market for potential trades that meet the requirements a day trader specifies. Second, to evaluate possible trades, they need sophisticated charting software that enables the use of multiple, customized indicators and timeframes. Therefore, they often use online trading platforms, such as TradingView, that offer such trading tools.
Day Traders and Swing Traders – Typical Profiles
Large institutional traders, such as banks, commonly engage in day trading. They have the benefit of trading tools that utilize complex algorithms to pinpoint trade opportunities. They can also use high-frequency trading (HFT) to make arbitrage trades – trading minute price differences of a security that briefly exist between different trading exchanges.
Additionally, there are many thousands of individual retail day traders.
Likewise, there is a mix of institutional and retail traders engaged in swing trading. Institutional traders using a swing trading strategy include portfolio managers of mutual funds or exchange-traded funds (EFTs). As previously noted, retail swing traders are usually employed full-time and look to trading as a source of supplemental income.
Day Trader or Swing Trader – Capital Requirements
Regulatory requirements for investing capital may factor into your choice to pursue day trading or start swing trading. The Financial Industry Regulatory Authority (FINRA) pattern day trader rule requires traders to have a minimum of $25,000 in their trading account if they are doing more than three trades per week.
Comparing Day Trading vs Swing Trading: Summary
Day traders are typically traders highly skilled in technical analysis and have the risk tolerance and necessary temperament to make quick buy and sell trading decisions throughout the day. Swing traders usually have a somewhat lower risk tolerance, enjoy having the advantage of taking more time to conduct analysis, and follow a more deliberate process in making trading decisions. Trading is usually the livelihood of day traders but just a source of extra income for swing traders.