Swing Trading vs. Day Trading: What’s the Difference?

Mon Jan 11, 2021, 08:23 pm | by Dan Schmidt | No comments

Flipping stocks for a living is the dream job for many traders. Some of the perks a successful trader can enjoy: no boss, no schedule, and as much vacation time as you want. You don’t even have to get out of your pajamas if you don’t want to. Traders employ several different methods when flipping stocks like day trading, swing trading, and buy-and-hold. If you’re looking for quick profits, buy-and-hold probably isn’t very appealing. In that situation, traders turn to either day trading or swing trading.

What is Swing Trading?

Swing trading is a short-term trading strategy designed to profit off price movement over a period of days or weeks. Unlike day traders, swing traders relinquish some control over their trades by holding positions overnight. Since pre- and post-market trading tends to be the most volatile, swing traders sometimes encounter a big loss. This also works in reverse too – if a company releases successful clinical trial results after the market closes, a swing trader can reap a huge gain just from holding overnight.

Swing traders often utilize technical analysis and other advanced trading strategies to find opportunities, but not at the level day traders have to. While day trading often takes hours of prep work and chart analysis, swing trading is more of a part-time job. Fewer trades are made each week and less monitoring is required of those trades.

What is Day Trading?

Day trading is a more meticulous type of stock trading that requires both time and a knowledgeable eye to perform successfully. Unlike swing traders, day traders don’t hold their positions overnight. Multiple trades are often made each day, with positions opening and closing in a timeframe of hours to minutes.

Day trading is a fast-paced lifestyle that requires not only the time and patience to learn, but the dedication to remain glued to your screens for hours each trading day. Sometimes you may hit your daily profit goal within the first hour of trading, but you’ll usually spend a few hours each day scanning the markets and looking for opportunities. Day traders use more sophisticated technical indicators than swing traders and entry/exit points must be far more precise. Additionally, capital requirements are in place for day traders – more on that below.

What Are The Main Differences?

  • Potential Returns – Day traders have the potential for higher overall returns because they’re trading more frequently and putting more capital to use. While swing traders often look for a few big wins here and there, day traders look to make quick gains on their trades and cut bait fast on any losers. Racking up incremental wins over and over might sound tedious, but that’s what makes day trading difficult.
  • Capital Requirements – The SEC has certain requirements for those labeled as ‘pattern day traders’. Under SEC guidelines, a day trade is characterized as any position opened and closed within the same trading day. If you attempt to make more than three such trades in any five-day period, you’ll need to have at least $25,000 in your account to continue day trading. Most brokers will block trading access after three-day trades if capital requirements aren’t met. Swing traders are under no such limitations as long as their positions are held overnight.
  • Length of Holding Period – Day traders close all positions before the 4 pm EST bell and hold no stocks overnight. This gives day traders more control over their positions and fewer chances of a surprise decline. On the other hand, swing traders can hold positions for days, weeks, or even months depending on their strategy and trading goals.
  • Strategies Utilized – Swing traders often use technical analysis in their trading, but for day traders, it’s a must. Since day traders often look to make profits off price movement as minuscule as 1%, getting things exactly right is key. Day traders using moving averages to target ideal entry and exit points, since every penny matters when making these types of trades. Day traders also need a scanner to mine the market for opportunities since watching thousands of different stocks is too much for two eyeballs to handle.

Should You Swing or Day Trade?

Swing Trading Pros and Cons

  • Pro: Unlike day traders, swing traders can get started right away because there are no capital requirements if you hold your trades overnight. 
  • Con: Swing traders make their profits slowly over time. When time periods are measured in weeks and not hours, some range-bound trading is to be expected.
  • Pros: No capital requirements for swing traders. As long as you hold a position overnight, you won’t be tagged as a pattern day trader.

Day Trading Pros and Cons

  • Pro: Profits, profits, profits. Since day traders trade every day, making money every day is the name of the game. Sure, you won’t bat 1.000 on your trades, but aiming for 6 or 7 out of 10 is enough to be successful. Good day traders can pile up profit quickly.
  • Con: Time and money are necessary to become a successful day trader. Not only do you need to meet the $25,000 requirement from the SEC, but you’ll need a stock scanner and other charting tools that might not come free. Additionally, you’ll need to focus a good part of your day on reading charts, scanning the market, and monitoring your positions.
  • Pro: Day trading can be a full-time job if you’re good enough at it. Most full-time day traders fail within the first year or so, but those who stick with it and learn to profit consistently can ditch the office lifestyle and work at home for themselves.
  • Con: Burnout is real amongst day traders. When your income is entirely tied to your trading performance, a few bad days or weeks can ramp up the stress. If you don’t have the right mindset, day trading might leave you on the wrong end of a margin call

Final Thoughts

When deciding between day trading and swing trading, think about your goals as an investor. Can you handle the stress of daily trading? Are you looking for immediate riches or trying to gain wealth over time? And of course, do you have the necessary capital and computing power required to be a successful day trader?

Most traders start using swing trading methods before graduating on to the more intense day trading regimen. If you don’t feel comfortable giving up your career and focusing on the markets full time, then swing trading is probably how you’ll want to trade for a while. But if you have the acumen, technology, and temperament for day trading, practice some day trades on a simulator before moving on to the real thing. Remember, day trading is not for the faint of heart.

Disclaimer: Benzinga is a news organization and does not provide financial advice and does not issue stock recommendations or offers to buy stock or sell any security. Benzinga Pro is for informational purposes and should not be viewed as recommendations. Benzinga Pro will never tell you whether to buy or sell a stock. It will only inform your trading decisions. You can find our full disclaimer located here.