Day Trading Vs. Swing Trading

How to Know Which Is More Suitable for You?

Have you always wondered how it is like to be a trader? Maybe you have some ideas from a recent movie that you last saw. However, before jumping straight into the trading world, it is very important to consider the type of trading style that is suitable for your personality. Some of this factors include, the amount of time that you would like to commit, the size of account that you would like to start with, the skill level required among many other things.

The trading world is a competitive environment that requires a lot of dedication and focus to hone the craft. There are also several strategies involved that requires time and patience to continuously improve on. Successful traders are people who know the trading requirements of each selected path. Let’s take a look at the difference between a day trader and a swing trader, to help you determine which is a better fit for yourself.

Day traders for example are professionals who makes a lot of trades during the trading day. The typical routine involved looking at price action charts where they primarily base their trading strategy on technical analysis to monitor the market. Each trading decision have a set of rules where they follow and is very systematic in their approach in taking profit and cutting their losers. This is because they like to capture as much profit in a single time frame and capping losses with no risk of holding positions overnight. On the other spectrum, swing trader fundamentally analyse the price cycle of a financial instrument where they hope to capture the benefit of the movement (where it can last from a period of a few days to a few months). Swing traders are particularly good at spotting the beginning of a directional price movement so as to enter the trade as early as they can and exit as fast as they could when the price movement ends.

Day Trading

The routine of a Day trader is not a glorified one where one often have the misconception from the movies that they saw. It is normally quite monotonous as it involves looking a variety of charts (sometimes even more than 100) to find the best trading set up that they would like to add into their watch list during the trading session. The pre-market homework tends to take about 1~2 hours each day to prepare and chart.
When a chart is favourable, the day trader will draw the important levels of support and resistance so as to assist them during the trading hour, where each decision is important in a short period of time. Day traders tend to trade on the 1, 3, 5 and 15 minute intervals.

At the end of each trading session, the day trader will complete his journal by storing the favourable charts into his watch list so that they can refer it on the next trading session. The advantage day traders have is that once a trading day is over, they can leave their trading desk without having the risk of a fundamental news outbreak that might be detrimental to their financial asset class. 

However, the opposite is true while the traders are still in the trading session, where important breaking news stories are like desserts presented by the market. Depending on the forecast and direction of the trade, a developing new story can often present many trading opportunities for the day trader to enter and exit with relative speed and precision. One such scenario is when a biomedical company announced to the stock exchange that they are filing for a ground breaking medical patent that might lead to a discovery of a particular disease or when a company decide to fire their CFO (Chief Finance Officer) due to failure of company internal audit.

When such news breaks out, a day trader has to rely on their temperament and thought process for a trading decision. The ability to digest information quickly to make split second decisions often lead to an overall impact to the trading profits.  Therefore, it is important to find out if you have the personality to tackle stress head on! For some day traders, they crave for such volatility in the market place as it meant that trading opportunities are always presenting itself. With proper risk management and trading strategy, the trade is taken calmly by following a well thought out trading plan. (eg; amount of money to risk, the amount of profit to target)

 One of the more popular day trading indicator that day trader uses is the Average True Range, where it tracks the volatility and price movement of the asset class. If you wish to determine volatility of the financial instrument, you will need to divide the current closing price of the stock with the ATR, the greater the value, the higher the volatility is. Therefore, in order to be successful in day trading, one must be quick and analytical in their understanding of the financial instrument. The day trader must be able to handle stress at any junction and must always remain level headed. The level of commitment is high as pre-market homework is required to be conducted and that during market trading hours, the trader is required to be at the trading desk at all times (except for that emergency toilet break of course!)

Swing Trading

On the other hand, if you always enjoy looking at the big picture of the company’s fundamental business model and do not have the time required to commit yourself to a trading desk, then swing trading is much more suitable. The advantage of being a swing trader is that the time commitment is much lower comparing to a day trader. Swing traders have the ability to take trades base on trading intervals of 4 hours, 24 hours, or even up a week. As a result, based on the trading strategy, they only require to check the market once the candle have been formed (based on the trading interval).

With constant upgrades being developed to our trading software and brokerage account, swing traders now have the opportunity to place orders at any time of the day and for a given set of instrument as well (orders such as Good till cancel, will only cancel when initiated by the user), therefore swing traders who are going for a vacation do not have to worry of missing out a trade when an order have been initiated. However, once an order has been triggered, they will need to have the discipline to monitor the market to ensure proper risk management is meted out.

The main advantage of being a swing trader is that it offers an equal chance to anyone that would like to participate in the market place, even when they do not have the time to commit a trading desk during market hours. Without the need to give up their passion or hobby, swing trading is popular technique among adults who currently hold a full time job, students who are pursuing their education and families who require to take care of their spouse and children.

Final Thoughts

When it comes to day traders vs. swing traders, it is important to understand that day traders profit more in percentage terms when trading on smaller sized trading accounts. For swing traders, they can maintain their percentage returns as their account grows. Regarding capital requirements, it varies between markets.

All in all, day traders need to be action lovers and as such, they are able to handle fast paced trading with lots of volatility while swing traders spend less time monitoring trades thus they are able to see the bigger picture.

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