If you’re interested in trading stocks, it is important to know the difference between day-trading and swing trading. While there are some similarities between the two, you should be aware of the pros and cons of both trading methods. Here are some important facts about day-trading and swing trading to help you decide which is the best fit for you.
What is Day-Trading?
Day-trading involves making dozens of trades in a single day. These trades are based on technical analysis and require constant monitoring. For day-traders, the goal is to make a living through trading stocks, commodities, or currencies.
Day-trading is a full-time job for many people who are interested in stocks. This involves making small profits on a number of trades in a single day.
Most day-traders do not keep any positions or own any securities overnight. People are drawn to day-trading because of the potential for large profits–however, this is not possible for everyone. It is most likely only possible for determined individuals who possess the necessary traits that are required to become a successful day-trader.
What is Swing Trading?
Unlike day trading, swing trading involves multiple trades every few days or weeks, or even months as opposed to per day. There are fewer transactions involved in swing trading. Positions in swing trading have long time horizons whereas day trading has a short time gain.
There is less active time required for people who are swing trading, and it is done by using your brokerage account. With swing trading, you identify swings in stocks, commodities, and currencies. This process may take anywhere from a few days to a few weeks to complete.
Swing traders typically do not make trading a full-time career like day-traders do. Swing trading allows traders to also hold a position at a separate full-time or part-time job. Because swing trading is not as frequent as day-trading, there will likely be small profits.
Pros and Cons of Both
To determine what method of trading is right for you, it is important to know the pros and cons of both types of trading. Knowing the pros and cons can help you to make a wise, informed decision about which route you should be taking.
Pros of Day-Trading
- The potential for large profits of an individual possesses the necessary traits of a successful day trader. These traits include decisiveness, discipline, and diligence.
- With day-trading, you can seize numerous opportunities in a volatile market.
- Day-trading allows you to be your own boss.
- There is no overnight risk, and you can hold positions overnight.
- If you are a skilled researcher, then you will have a good chance of being successful as a day-trader.
Cons of Day-Trading
- Gaining spectacular profits may only be possible for rare and seasoned individuals who possess all of the necessary qualities of a successful day-trader.
- Day-traders often suffer significant financial losses in their first few months of trading.
- There is the possibility that day-traders will never graduate to profit-making status.
- Huge losses can be incurred on borrowed monies, which can curtail your day-trading career and put you in debt.
- You have to compete with high-frequency traders, hedge funds, and other market professionals.
- You typically have to quit your day job and forgo your steady income.
- Day-trading can be incredibly stressful and requires a high degree of focus that may be difficult to maintain.
Pros of Swing Trading
- You can dedicate less time to trading stocks and are able to maintain your regular job.
- You can make greater profits on single trades.
- You will be able to trade when the markets are closed.
- There is a lot of flexibility in capital management.
- Swing trading can be very profitable.
Cons of Swing Trading
- You will be exposed to overnight and weekend price gaps.
- You may miss exceptional stocks.
- Marketing time will be more difficult.
- The cost of trading can easily add up to a large amount.
- You may realize greater losses.
- You will be trading with fewer volatility opportunities.
- You may miss out on greater profits and only capture part of trends.
Which One is Better for You?
Though one trading style is not inherently better than another, one may be a better fit for you depending on your needs and styles of trading. It is important that you are choosing the trading style that works best for your skills, preferences, and lifestyle. If you want to maintain a separate job, then swing trading will be a better fit for you.
If you possess the necessary skills to be a successful day-trader, then you may want to go that route. If you are passionate about trading full-time, then day-trading is the best fit for you. If you do not possess the qualities necessary to be a successful day-trader, then you should stick with swing trading for now. Consider your lifestyle and your skill and experience in trading stock before jumping into a decision on which trading method you should use.