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Trading Articles

Swing Trading vs. Day Trading – trading style guide

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Swing trading vs. day trading, which one is right for you? This guide will help you answer this question and help you decide whether either trading style is suitable.

What is Day Trading and Swing Trading?

You can’t break down the similarities and differences between swing trading and day trading if you can’t define each one in isolation. So, before we go into our swing trading vs. day trading overview, let’s explain what these types of trading look like in practice so you can see the distinction between them:

Swing Trading is…

Swing trading is a way of trading whereby the aim is to capitalise on short-term and medium-term price movements. Put simply, swing traders wait for the price of a financial instrument (such as stocks) to move from a bearish trend to a bullish trend. In other words, you’re waiting for the price to swing from a negative to a positive.

People using this trading style will typically use technical and fundamental analysis to analyse price charts. When they believe a pattern is forming, they’ll act. Specifically, if a price breakout looks to be happening and a bullish period is starting, a swing trader will enter a position. When charts appear to indicate the reverse is happening, they’ll exit a position. All of this usually happens over the course of a few days to a few weeks.

Day Trading is…

Day trading is a high-octane way of buying and selling financial instruments. It’s a more intense way of trading because you make multiple trades in a single day. That’s why it’s known as day trading. You enter and exit positions throughout a day’s trading session, and you never hold positions overnight.

People using this trading style will use technical analysis and charting systems to make decisions in real-time. The aim is to make small profits on each trade. Therefore, it’s not always desirable to hold positions for a long time. Day traders want to enter a position, make a profit, and get out so they can move onto the next trade.

Swing Trading vs. Day Trading: The Facts

Is there a distinction between swing trading and day trading? Yes. Are there some similarities between the two types of trading? Also yes. The similarities between swing trading and day trading are that you’re not holding positions for very long. Swing traders will hold positions for a few days, but this is still a short period of time compared to long-term investors.

Another similarity between these two trading styles is the way decisions are made. Everyone has their own way of doing things, but swing and day traders all tend to use technical analysis. This is because, in both types of trading, you’re aiming to take advantage of small changes in a market’s momentum. Aside from these similarities, there are some differences between the two trading styles. With this in mind, here’s an overview of the swing trading vs. day trading differences.

Swing Trading Day Trading
Hold positions for short periods of time as you wait for a new pattern to form Never hold positions overnight, which means you enter and exit trades much faster than swing traders
Can be done without a lot of sophisticated analytical tools Requires sophisticated trading software for analysing the market and making trades
Looking to make few trades but a more consistent/larger profits on each trade Making multiple trades per day with small losses/profits – the aim is the result at the end of the day, rather than each individual trade
You use trends and momentum indicators to make decisions You use buy and sell signals to decide when you enter/exit positions
Trades can be made and left for a few days, making it suitable for part-time traders Trades can’t be left for too long, which makes it a full-time activity

How to Choose Your Style: Swing Trading vs. Day Trading

Understanding the swing trading vs. day trading debate is one thing, but choosing a side is another. Indeed, you’ll never enjoy the process if you don’t choose the right trading style. Only you know which side of the swing trading vs. day trading divide you’re best suited to. However, to help you decide, here are some things to consider:

How experienced are you?
Day trading is a full-time activity and not only requires an acute understanding of the markets you’re trading, but the skills to use sophisticated trading tools. That doesn’t mean swing trading is easy or doesn’t require any skill. However, because you’re required to make lots of decisions as a day trader, the impact of a weakness is magnified.
How much pressure can you accept?
Day trading is time-sensitive. You’re aiming to enter and exit positions to capitalise on market movements before everyone else catches up. This can be intense and, if you’re prone to emotional swings when under pressure, this may not be the trading style for you.
How do you view profits and losses?
Day traders will constantly be up and down with regards to profits and losses. The aim is to end the day with a profit. However, the road to that goal can be paved with lots of losses. Can you handle this? If you prefer to make trades and step back from the action and wait, swing trading might be better.

The Capital You Need for Trading Different Assets

The Capital You Need for Trading Different Assets

Swing trading vs. day trading requires an understanding of the similarities and differences between each style. However, one thing that isn’t necessarily determined by the strategy you use is capital. In practice, the amount of money you need for either type of trading is based on the financial instrument you’re buying/selling. With this in mind, here are some general principles to consider based on the thing you’re trading, rather than the way you’re trading:

Stocks

Online trading accounts will require you to have a certain amount of capital in your account if you’re day trading. This is to cover the volatility of the market. Some accounts may require you to have over £20,000 available. Swing trading stocks requires less capital, but it’s still a good idea to have enough money to have at least three open positions at once.

Forex

You can trade forex with less capital than stocks, but it’s a good idea to have at least £500 in your account to help you take full advantage of the opportunities out there.

Futures

This type of trading is most suited to professionals because you’re often trading on margin. That means you need at least a minimum amount of money in your account. Moreover, futures contracts can be costly. Therefore, you may need upwards of £5,000 if you’re day trading futures, and over £10,000 to swing trade.

Swing Trading vs. Day Trading: The Pros and Cons

Which type of trading is for you? As well as thinking about the difference between swing trading and day trading, and what type of personality you have, here are some advantages and disadvantages of both styles:

Swing Trading Day Trading
Advantages
  1. You can trade at times that suit you
  2. Doesn’t need to be a full-time job
  3. You don’t have to focus on trading all day
  1. Your positions are all closed in a single day
  2. Small edges can turn into large gains
  3. Suitable for a variety of financial instruments
Disadvantages
  1. Might not have the same profit potential as day trading
  2. It might take time for a bad trade to reveal itself
  3. Holding trades overnight could lead to unexpected price differences
  1. You have to trade during open hours
  2. It’s a full-time job
  3. Requires intense focus

Next Step: Start Trading Today

That’s the swing trading vs. day trading differences laid out. We’ve also given you some pros and cons of each, and which trading style might be best for your personality. The next step is to learn more about trading in general before you create an account with Skilling.

We suggest taking a look at our trading news and insights for all the latest information about the industry. Click here to learn about day trading crypto to see if this volatile market is for you. Finally, see if investing in CFDs on shares in companies is for you in a day trading stocks guide.

Finally, make sure you understand that all types of trading carry a certain amount of risk. You can lose money as well as make it. So, be prepared for this, regardless of the trading style you choose. Once you’re happy with this, use our sign-up link to create your account and start trading today.

Not investment advice. Past performance does not guarantee or predict future performance.

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