Swing Trading vs Day Trading – Pros and Cons for Investors

What is Swing Trading?

Swing Trading is the trading practice traders use to benefit from market swings of a minimum of 1 day and as long as several weeks. Swing trades target the maximum return from the buying and selling of the interim lows and highs within a larger overall trend.

Traders who practice swing trading capitalize on the upward and downward “swings” in the security price. These traders carry out multiple buying and selling during the trend period and target small wins that ultimately lead to big significant returns.

Swing Traders use daily charts with a duration of 60 mins or 24 hours. And some also use 1-hour charts and/or 4-hourly charts.

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Swing Trading Strategies

• Fibonacci Retracement – The traders can use the Fibonacci retracement strategy to identify support and resistance levels.

• T-Line Trading – This trading strategy is used on a chart to identify the best time to exit the trade or enter the trade

• Japanese Candlesticks – Traders use this strategy to identify trading opportunities. It is one of the easier trading strategies to understand and interpret.

• Momentum Strategies:

• • • Breakout Strategies – This strategy tells that the market is strong enough to reach and penetrate the breakout level. And is there enough strength left for the trader to profit from?

• Trend Following Strategies – The main focus of trend-following strategies is to capture the big moves in the market.

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Technical Indicators for Swing Trading

• Relative strength index (RSI)​ – This indicator for swing trading is used to determine the future direction of a market, and to see whether an asset is overbought or oversold
• Simple moving average (SMA) – It is customizable over different time horizons and can be used for short- and long-term trading strategies. Investing in value stocks is a long-term investment.
• Moving average convergence divergence (MACD) – It is used to identify new trends on price charts and decipher whether they are more bullish or bearish
• Volume – It shows how robust the newly formed trend is. The higher the volume, the stronger the trend.
• Bollinger Band – It quickly detects a trend, the overbought and oversold levels, and the volatility. This indicator is represented via three lines – a moving average and two standard deviations, a positive and a negative one.

There are dozens of technical indicators, and using effective indicators ensures that consistent signs may be detected as part of a plan.

Best Swing Trading Tools to Use

The above-mentioned trading tools perform extremely well for swing trading when combined with the below chart tools. They are:

• Support and Resistance Lines – These are very important when determining an asset’s price point that has had trouble exceeding in the period.
• Chart Patterns
  • Trend Continuation Patterns – They anticipate the continuation of a trend.
  • Trend Reversal Patterns – It signals the reversal of a trend

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Pros and Cons of Swing Trading

Every trading strategy comes with its set of merits and demerits. The pros and cons of swing trading are listed below:

Pros

• Less Time Consuming – Swing traders do not require the active attention of the trader. The trader can research and gather information at his/her own pace.
• A good part-time job – The demands of time and effort are not high for swing traders and, traders are not required to commit fully to this. Therefore, they can easily manage this trading alongside other jobs.
• The lower number of trades- The number of trades is very low in the case of swing trading. Swing traders can be more selective and need not punch in a number of trades on a daily basis. Renewable energy stocks have been very popular in the year 2020 and their popularity continues to increase in 2023.
• Increased chances of higher profits – Since swing trades are executed after more time invested in research, the stocks selected are of better quality. And better-quality stock eventually yields higher profits.
• Wide range of professional trade platforms available – Swing traders can avail themselves of a wide variety of swing trading platforms like Meta Trader and resources.

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Cons 

• A long holding period has its risks – Holding a stock for longer periods of time eventually exposes the trader to uncertainties and the exposure to risk is higher. Best long-term stocks to invest in 2023.
• Finding the right time of exit is tricky – Swing trades have a huge window for prices to move because of the longer trading period. Therefore, the chances of getting the timing right for exit are not always 100%. 
• Every stock is not Swing Trade material – Blue chip company stocks are usually not the best picks for swing trading stocks

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What is Day Trading?

Day Trading is the trading practice executed within the same trading day. A trader practicing day trading will buy a security/stock and sell it during the same day.

Same-day trading is backed by the supply and demand concept. When bought in large numbers the supply of any stock declines and it drives the prices upwards. Similarly, when a stock is sold in large numbers, the supply of that stock increases which drives the price down. 

This is where the opportunity lies for the day trader. They can spot the buying or selling pressures and act at the right time can make good profits. Check out the list of best day trading stocks with their analysis to make your day trading journey convenient and rewarding.

Day Trading Strategies

There are multiple day trading strategies adopted by day traders:

• Scalping – Scalping is buying and selling securities as fast as the trader can and the investor earns from small changes in price. But it’s always wise to limit your exposure to risky investments like best altcoins.
• Range Trading – This strategy makes use of oversold and overbought areas. It is based on the concept that the securities whose prices are below or above their average as per the trend will go back to their average market price eventually.
• News-Based Trading – This strategy makes use of market knowledge and information that can impact the stock price. Traders buy or sell accordingly.
• High-Frequency Trading – The traders make buy or sell decisions based on complex algorithms calculated by computer programs.

Technical Indicators for Day Trading

Technical indicators are very helpful in Day Trading. They indicate the direction of the trend which helps determine market price movements; they indicate the volatility of the security which helps determine the potential profit; they inform about the investment market momentum which helps determine the overall process of profitable investment and the popularity identifications measurement through volume. 

• Relative strength index (RSI)​ – It is a momentum indicator that is used to see whether an asset is overbought or oversold. The Relative Strength Index has multiple benefits but the primary benefit it provides is its versatility.
• Bollinger Bands – They are an updated version of daily moving averages. It includes three lines:
  • Lower Limit
  • Average Closing Rate
  • Upper Limit

• Momentum Oscillators – It gives stock price indications while considering the market volatility.

• On balance volume (OBV)– It is a strong indicator of market trends. A high OBV means the buyers will push the price high and vice versa.
• Moving average convergence divergence (MACD) – This indicator shows the relationship between two averages. A trader typically uses the 12-day and 26-day exponential moving averages (EMAs).

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Pros and Cons of Day Trading

Every trading strategy comes with its set of merits and demerits. The pros and cons of swing trading are listed below:

Pros

• Chances of a good return are high – Day Traders focus on small gains from buying and selling multiple times during the day. Eventually, these small gains add up to higher returns than other trading practices. 
• No overnight risk – Many traders and investors are not aware of the various risks they are exposed to overnight, while the market is closed. But Day traders need not worry about this as they don’t have any open positions once the market shuts for the day. Hence, there are zero overnight risks for them. Get to know the best tech stocks to invest in now.
• You are your own boss – A Day Trader takes his trade decisions himself and has no one to report to. And the working hours are strict till 4 pm when the market closes. Hence no overtime hours.
• Multiple trading strategies can be adopted – There are several trading strategies that can be used in day trading. Traders can make use of technical analysis, or they can use a breakout trading strategy or even counter-trend trading. It all depends upon how the market is running. By the end of the trading day, traders have a good trading strategy that works well for them.  There are multiple technical analysis courses available that teach technical analysis.
• Instant Results – This is one of the best trades for people who demand immediate results. Since buy and sell are executed within the day, traders can see their profit or loss within minutes or hours. 

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Cons

• Huge amount of capital required to start Day trading – In order to carry out multiple trades during the day, traders need to have a good amount of capital to start. Check out some of the best recession stocks to buy now.
• Requires lots of research for the company and the overall market – Because only when the traders understand how the market is moving as a whole and how the specific company is performing, can they decide what company is good for investment. And since multiple trades care is carried out during the day each one requires equal hours of research.
• Loses happen really quick – Using stop losses is advised by every trader who has suffered financial losses. Because any stock can drop drastically within a day eroding away a huge chunk of profits and capital. Investing in fintech stocks is a smart investment move today.
• Emotions get involved – Day trading is exciting because it instantly gives a reward. However, it also exposes the trades to high risk because traders get excited with one trade and try to do the same with the other which eventually hurt their profits.
• Very time consuming – Day trading is intensive, stressful, and requires active involvement throughout the day. The stock market moves quickly. And id traders have any open positions, they have to monitor them at all times to avoid missing any upward trend and to save themselves from a downfall in stock price. Learn about the best defense stocks in 2023.

Difference between Swing Trading and Day Trading

Swing trading and day trading are similar trading methods, but there are several key differences between the two.

Trading Frequency

Day Traders open and close positions multiple times during the day. They have to sell the security/stock on the same day. However, swing traders can hold their trade for a day, week, or month depending upon their financial goal.

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Number of Transactions

Since day traders have to buy and sell during the same day, the number of transactions of day traders is very high. In comparison, swing traders have a lower number of transactions because they hold their traders for longer periods of time.

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Time Period

As the name suggests, day trading includes selling and trading within the same day. Hence, day traders have a time period of one day. While swing traders trade according to their target return and hold their positions for longer time periods. The goal is to capture short- to medium-term profits as trends change in a market.

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Time Contribution

Both day trading and swing trading require time, but day trading typically takes up much more time. The minimum a trade lasts is for two hours for day trading. This means traders have to invest a lot of time and attention in their trades.

On the other hand, swing traders might not require active attention throughout the day, but they also have to invest a lot of hours in research and market information.

But Day traders take up a lot of active time every day, throughout the week.

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Conclusion

Understanding the traders’ financial goals and risk tolerance is very important before starting trading. Because every trading technique is not suitable for all investors. 

Some like instant results and have a high tolerance. While others make calculated trades and do not compromise on quality. Therefore, before picking up a trading strategy or technique, always be clear about your financial goals.

At the start, its always advised to take things slow and focus on learning. Otherwise, traders can lose their money fast in the world of stock markets 

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