What is day and swing trading

Swing trading

Swing traders will hold on to an asset for 1-4 days as they expect a strong movement in the prices during this time. Since the time period is short, they need to act quickly when buying or selling. Swing traders are able to successfully navigate short-term price movements and take advantage of price momentum in their favour. They place an emphasis on trends and external dynamics that affect the prices, rather than focusing on the intrinsic value of the asset. 

Day trading 

This is another style of Forex trading that limits itself to a particular trading day and not more than that. Day traders open and close their positions in stock on the same day. They can also opt for multiple transactions on the same asset within a day. This way, they are able to close all trades before the end of the trading day and do not hold any open positions overnight. Price volatility and average day range are two key factors that impact the day traders’ effectiveness. They are expert in entering and exiting trades quickly and efficiently to secure profits from the trading activity.

The difference between swing trading and day trading 

The trading timeframe is the crucial differentiator between swing trading and day trading. However, there are other characteristics where the two trading styles differ.

Capital costs 

Day traders have to make their move within a short duration of time. Also, they need to compete with large institutional players like hedge funds and larger trading organisations. This means that they need access to sophisticated trading software and a trading platform to do a continuous analysis.

For swing trading, however, the initial set up costs will be far less as it requires a basic laptop with decent bandwidth and standard tools, this can be more cost-effective than day trading. You can also master the art of swing trading with a lot of free resources available online.

Time taken for trading

Day trading, on average, takes more time than swing trading. Day traders typically put in two to three hours daily. Traders will also need extra time for chart preparations and its analysis. Anything more than three hours and there are chances that this becomes a full-time job for day traders.   

On the other hand, the time taken for swing trading is typically lesser. Getting sector-wise news that may affect price movements and updates on current positions would take on average, an hour. If you are targeting the same sector or industry, then a daily analysis would not even be necessary once you have enough knowledge about it.  Swing trading can be taken up as a part-time role with other commitments like education or a day job.

Focus and attention 

Both swing trading and day trading can be stressful, especially if your actions result in losses. Hence it strongly requires traders to remain focused. 

Day traders need to be on their toes given the short window available to make a move. They need to monitor their positions every few minutes and grab the opportunity when it arrives. Also, if they have a larger volume of holdings then it becomes difficult to extract gains from all their positions every single day.

Swing trading happens at a slower pace. Traders have a larger timeframe to exit or enter a trade. They have time to assess their options even after the market has closed and prices have stopped moving. However, in the absence of discipline or focus, this style of trading too can become stressful and risky very fast.

Which style of FX trading is better for you?

The time horizon on which traders choose to trade will have a substantial bearing on the type of strategy used and the returns potential. Day traders open and close stock positions inside a single business day. But swing traders usually give one to four days to make the trade. It is not uncommon to see swing trades that go for weeks too. 

One trading style is not necessarily better or more popular over the other. The traders’ individual needs will better decide which style to adopt when trading Forex. This would largely depend on the time at hand for trading, capital available, and the market being traded. Traders may opt for just one style, while others may adopt a judicious mix of both styles to capture maximum profitability from their trading.