Day trading or swing trading – which is more profitable?
Have you ever thought about which is better, day trading or swing trading? When comparing these two popular trading strategies, which strategy is considered more profitable and beneficial to the trader in the long run?
Suppose you have seriously started thinking about a long-term trading career, especially in the volatile and dynamic Forex market, which has a daily turnover of approximately 6.6 trillion. In that case, it is important to choose an adequate trading strategy.
The reason for choosing that strategy is simple – you only have a little chance of long-term success with a strategy. And considering that these are the two most popular strategies, it is not surprising where the question of which is more profitable, day trading or swing trading comes from.
To give you an adequate answer to this question, you must have a good understanding of what day trading and swing trading actually represent. So let’s start!
What is day trading?
Day trading is a strategy in which traders buy and sell securities within a day, minutes, or seconds. It means exploiting the expected up-and-down price movements that always happen in the trading session and has nothing to do with traditional investing.
The main reason for buying securities and other assets is to profit from the quick price fluctuations. This type of trading is usually informed by price movements or technical analysis, requiring high objectivity and self-discipline.
It also employs a lot of useful strategies and techniques that are responsible for the capitalization of these perceived market inefficiencies. Day trading is mostly used in the Forex and stock markets, where day traders are educated in trading and aim to profit from it. Numerous traders add an extra level of risk with leverage to increase their stakes.
Intraday strategies used by day traders
When considering which is better, day trading or swing trading, you should know first which intraday strategies are mostly used by day traders. These intraday strategies are:
- News-based trading – It sizes trading opportunities from the heightened volatility due to news events.
- Scalping: It focuses on creating the majority of small profits on daily temporary price changes.
- High-frequency trading (HTF) – This strategy utilizes sophisticated algorithms for exploiting short-term and small inefficiencies of the market.
- Range trading: It utilizes predefined resistance and support levels in prices. The reason for that is to determine a trader’s buy and sell decisions.
How to get started with day trading?
To successfully start day trading, it’s crucial to understand and know the marketplace well in the first place. Technical analysis fundamentals are crucial to know before getting into day trading. Besides that, a trader should have sufficient capital to capitalize on intraday price movements effectively. Having enough cash is essential for traders who aim to leverage margin accounts.
After getting to know the marketplace and having a sufficient amount of money, it’s essential to use any of the day’s strategies and also trading news. These strategies get refined until they limit losses and create consistent profits. Self-discipline is also crucial for succeeding in day trading in the long run.
Are there any risks of day trading?
All those who are wondering what is better, day trading or swing trading, should also be aware of the potential risks of each trading strategy. Regarding day trading, traders might expect the following risks:
- Severe losses are possible.
- It is a stressful activity in the long run.
- Claims of easy profits are sometimes false.
- Day traders often depend on borrowing money.
What should day traders pay attention to?
The most important and inevitable thing is to know what is the main rule of day trading. It’s never to hold onto one single position when the market closes for the day. Either sell out, win, or lose. Overnight positions are a big no-no.
So, when considering what is more profitable, day trading or swing trading, let’s know more about swing trading to answer the question properly.
What is swing trading?
Swing trading represents a specific trading technique that is usually associated with technical analysis in which a trader aims to profit from short-term price swings. It is a style of trading that goes for short-to-medium-term gains in any financial instrument from a few days to several weeks.
This strategy utilizes technical analysis to seek valuable trading opportunities, analyzing trends, patterns, and prices. So, it involves taking trades from a previous couple of days to several months, with the main goal of profiting from an anticipated price increase.
It exposes a trader to numerous risks during the weekend or night when the price is able to open the following session with a different price. With swing trading, traders are able to make profits with an established risk/reward ratio that’s based on a profit target and a stop loss. Based on technical indicators and price action movements, traders could take profits or losses.
How to understand swing trading better?
Generally speaking, swing trading is a kind of strategy that mostly involves holding either a long position or a short one for more than just one trading session. However, these positions must be held for only a few weeks or months since it’s a general time frame.
Swing traders are able to happen during a trading session, even though it’s rare. It’s crucial to understand that the main goal behind the swing trading strategy is to capture a nub of a potential price movement. Even though some traders opt for volatile stocks that include huge movements, some prefer more sedate ones.
Anyways, swing trading includes:
- Identifying where an asset’s price probably moves next.
- Entering a particular position.
- Capturing that potential profit in case the movement is materialized.
Remember that successful swing trading professionals will only capture a nub of the price move they expected before proceeding on the next opportunity on the market.
What are the main pros and cons of swing trading?
As someone interested in knowing what is more profitable, day trading or swing trading, it’s also important to know the main pros and cons. Regarding swing trading, let’s see their main pros first, shall we?
- Maximizing short-term profit potential by capturing the volume of swings on the market.
- It requires less time than day trading in general.
- Swing traders are able to rely on technical analysis and simplified the processes.
- Swing traders often miss longer-term trends in favor of short-term market moves.
- Market reversals are able to result in considerable losses over time.
- Trade positions represent the main subject of the weekend and overnight risks.
Which is better, day trading or swing trading?
Now that you’ve understood the basics of both strategies, the time has come to find out which is better in general, day trading or swing trading. Primarily, it takes work to generalize and give a proper answer because it heavily depends on what type of trader you consider yourself to be. The main distinction between these two trading strategies is the holding time for positions.
Swing trading often involves an overnight hold, while day traders usually close positions before the market’s closing time. Generally, positions in day trading are limited to one day or 24 hours. In contrast, swing trading usually involves holding positions for at least several days to weeks or even, in some cases, months.
The unpredictability of overnight risks
Holding overnight positions will cause swing traders the unpredictability of overnight risks like down or gaps up against the position. With that position, swing traders will probably be done with a smaller position size than day trading if both types of traders have similar-sized accounts.
Typically, day traders use day trading margins of 25%.1, or larger position sizes, while swing traders have access to leverage or a margin of 50%. So, for example, if a swing trader gets approved for margin trading, he’s required to put $25,000 in capital for a trade, using $50,000 of a current value.
For all these reasons, it takes work to tell whether to go with day trading or swing trading. Both swing and day trading strategies have their advantages and disadvantages. However, let’s see what is more profitable, in general, as a conclusion, shall we?
What is more profitable, day trading or swing trading?
If you were wondering who makes more money day trading or swing traders, suppose we consider that beginner traders could be more successful as swing traders. Then they could achieve so with day trading. Day traders do a couple of daily transactions, multiplying profit opportunities. Nonetheless, gains and losses, in this case, are smaller than in swing trading.
When traders decide to do swing trading, even though profit and loss occurrences are somehow less, they are often substantial. Keep in mind that when comparing what is better, day trading or swing trading is that for day trading, investors typically require the latest software and technology. In contrast, day traders need to be quicker and more efficient. Ultimately, swing trading is known not to require the latest apps, so it’s more convenient and could be more profitable in the long run.
Nonetheless, remember that, as mentioned above, it all depends on what kind of a trader you are and your ultimate trading goals. Successful trading is a relative subject matter to many. Good luck choosing the best trading strategy for you!