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Swing Trading vs. Day Trading: What is the Difference?

20 July 2022

There has often been a comparison between the two styles of trading i.e Swing Trading vs Day Trading. Some prefer to adopt the former and some prefer the latter. Depending on the risk appetite and various factors, a trader usually picks the trading style that suits the most.

In this blog, we will help you understand the meaning and the key differences between intraday vs swing trading based on various factors including leverage, risks, tools, strategies, execution and more.

Although, if you are a beginner and wondering what is Swing Trading and what is Day Trading, so first, let us take you through their respective meaning then dive into the main differences between the two.

Swing Trading Meaning

This style of stock market trading is used to capitalize on the short-term stock trends and patterns, Swing Trading is used to earn gains from stock within a few days of purchasing it; ideally one to seven days. Traders technically analyze the stocks to gauge the movement patterns they are following for the proper execution of their investment objectives.         

Day Trading Meaning

This form of trade involves purchasing and selling stocks in a single day. In the case of Day Trading, individuals hold stocks for a few minutes or hours. A trader involved in such trade needs to close his/her transactions prior to the day's market closure. It is popular for capitalizing on small-scale fluctuations in the NAV of stocks.

Read on for more information as we discuss the definitions and distinctions of these two sub-categories (Swing Trading & Day Trading) of Trading in today's blog.

Major Differences Between Swing Trading & Day Trading

Here is a detailed comparison between Swing trading vs intraday trading-

 

Swing Trading

Day Trading

Meaning

Swing Trading is a method of trading in which gains are sought over a few days to several weeks in stock or any other financial instrument. Technical analysis is the main tool used in swing trade by swing traders to find trading opportunities.

In order to avoid unmanageable risks and negative price gaps between the price at the close of one day and the price at the open of the next, Day Trading is a type of securities speculation in which a trader buys and sells a financial instrument during the same trading day.

Leverage

Since Swing Trading involves holding a position for several days, the typical leverage is two times the initial capital.

The standard definition of leverage in Day Trading is four times the initial investment.

Risk Involved

Whilst in Swing Trading your role is open, there is a higher chance that circumstances will change and your position will no longer be successful as it involves higher risk as involves overnight holding risk.

The 1% rule restricts Day Traders' risk to no more than 1% of their total account value on any given trade. Trading large positions with close stop-losses or small positions with stop-losses far from the entry price allows traders to risk 1% of their account but it also involves the risk of daily volatility.

Role

Swing Trading can also be done on the side as a part-time job. Swing Traders are active for a few hours each day and do not spend the entire day shackled to their computers.

Day Trading can be a full-time job. Day Trading calls for complete commitment and time.

Security Holding Period

The security holding period in Swing Trading typically ranges from a single day to several weeks.

The security holding period in Day Trading is shorter than a day.

Tools Used

Swing Trading entails making numerous trades in a single day while utilizing charting systems and pattern analysis.

Technical analysis and charting technologies are used in Day Trading to execute numerous trades in a single day.

Time Required

Swing Trading calls for less time spent on the market.

Day Trading entails investing more time in the market towards trading.

Execution of Trade

Swing Trading requires more time for the trade to mature, and traders use this time to track market movement. It aids in risk reduction.

Day Traders must be swift to execute trades because a single loss could indeed wash out the entire day's profit.

Capital Requirements

Swiss Trading requires more capital than day trading, which makes it less accessible to most traders.

Day Trading requires less capital than swing trading, making it more accessible to most traders.

Which is Safer?

Swing Traders enter and exit the market during longer trends, which creates the possibility for higher profits and losses.

Swing Trading relies on much larger price movements than Day Trading does, so the risk of loss is typically higher in Day Trading. However, numerous small profits or losses can quickly add up when you make several trades in a single day.

Trading Strategies

The following 3 approaches can be used by Swing Traders as Swing Trading Strategies to find trading opportunities that can be taken action on

 

1. Fibonacci Retracement

Fibonacci Retracement is an important and interesting tool used by technical traders in stock markets around the world. It is a number theory-driven metric that can help traders analyze the buy and sell points of specific stocks. 

In the real world, the use of this tool is rather restricted, but there is ample scope for future technical trading. Whenever there is a strong upward or a negative/downward trend in a stock's price, Fibonacci Retracement levels are often noted. 

Also, any stock whose price is on a noticeable high run may retrace back once before moving again on the bourses.

 

 

2.  T-Line

The T-Line on a chart is used by traders to decide when to enter or exit a trade. A security's closing price above the T-Line is a sign that the price will increase going forward. The security's closing price below the T-Line is a sign that the price will keep declining.

 

3.  Japanese Candlesticks

Japanese Candlestick Charts are versatile tools that are used by seasoned traders to analyze stock markets.

There are different types of Japanese Candlestick Patterns including Spinning Marabozus, and Doji's. In Japanese, the word Marubozu means 'shaved head'.

If you look at a Marubozu candlestick, the first thing you will notice is that it has only a body and no tail, wick, or shadow. Marubozus are used by traders to identify strong bullish or bearish patterns. The lack of shadows or wicks indicates that the chart does not extend beyond the price range of the opening day.

The following 2 approaches can be used by Day Traders to find trading opportunities that can be taken action on

 

1. Scalping Strategy

The scalping trading strategy involves making financial gains from small price changes. This method is commonly used by day traders when buying and selling commodities.

In addition, usually, individuals engaging in high-frequency trading utilise this technique. Individuals must keep in mind that the fundamental or technical setup in its entirety does not have much relevance in this case. That said, price action has a greater significance in the case of a scalping strategy.

When picking stocks, individuals opting for this intraday trading strategy must ensure that they choose shares that are liquid as well as volatile. Furthermore, they must make sure to put in a stop loss for all orders.

 

2.  Momentum Strategy

As the name suggests, the basis of this Trading Strategy is to make the most of the momentum in the market. This involves tracking the right stocks before a significant change in the market trend materializes.

Based on this change, traders buy or sell securities. The choice of stock depends on the latest news, the announcement of takeovers, quarterly earnings, and more. Thus, intraday traders need to study such news regarding stocks that are on their watchlist and place buying or selling orders accordingly.

Since share prices fluctuate owing to various external factors, intraday traders must make quick decisions to earn returns. The duration for which individuals hold the shares depends on the momentum of the market. Additionally, this strategy is the best option strategy for day trading.

Conclusion

It's an open dispute whether to trade in Swing Trading Vs Day Trading. There are many traders who fall into each of the two categories, and both trading methods are very popular. Your trading personality can help you choose a trading style.

Please note that this blog is only to be used for educational and informational purposes. The information and materials on this website are not offers to buy or sell any of the securities mentioned there, and they should not be construed as such. Not all investors are suitable for trading or investing in securities.

Day trading and Swing Trading both have significant potential risks, so they should only be considered after conducting sufficient individual research.

Happy Trading!

Disclaimer: The views expressed in this post are that of the author and not those of Groww.

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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