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

Day Trading vs. Swing Trading: An Overview

Active traders often group themselves into two camps: day traders or swing traders. Both seek to profit from short-term stock movements as opposed to holding securities for long-term growth. The primary difference in the trading strategies is that day traders trade many stocks during a day, while swing traders trade many stocks over a longer time frame, typically two days to a few weeks. Here are the pros and cons of day trading vs. swing trading.

Day Trading

As the name suggests, day trading involves making dozens of trades in a single day. Day traders rely heavily on technical analysis and sophisticated charting systems to detect trading patterns and identify strategic enter and exit opportunities.

The day trader's objective is to make a living from trading stocks, commodities, or currencies, by making small profits on numerous trades and capping losses on unprofitable trades. Day traders typically do not keep any positions or own any securities overnight.

Advantages of Day Trading

Day trading is unlike many other styles of investing. Know for its fast pace and adrenaline-inducing approach, not all investors are suited for this approach to financial markets. However, day trading is arguable more than the pursue of profits: it is a lifestyle of pitting your wits against the market and living in a thrilling, high-risk environment.

Day traders have the opportunity to work independently. Instead of reporting to a firm or following trading direction from a company, any investor with enough personal capital can trade when they want, working as flexible as a schedule as global markets will allow.

For many jobs in finance, having the right degree from the right university is a prerequisite just for an interview. Day trading, in contrast, does not require an expensive education from an Ivy League school. While there are no formal educational requirements for becoming a day trader, courses in technical analysis and computerized trading may be very helpful.

Disadvantages of Day Trading

The U.S. Securities and Exchange Commission (SEC) points out that "day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status." While the SEC cautions that day traders should only risk money they can afford to lose, the reality is that many day traders incur huge losses on borrowed monies, either through margined trades or capital borrowed from family or other sources.

Day trading often requires substantial investments in trading set-ups. Day traders often have to compete with high-frequency traders, hedge funds, and other market professionals who spend millions to gain trading advantages. To compete, a day trader has little choice but to spend heavily on a trading platform, charting software, and powerful computing devices.

There are also ongoing expenses relating to day trading. Due to the volume of trades, day traders may incur a higher-than-average amount of transaction fees. Day traders may also incur ongoing expenses for obtaining live price quotes and commission expenses that can add up because of the volume of trades.

Day trading requires the full attention of the investor to be successful. Most day traders quit their steady paycheck to pursue day trading full-time. In addition, a day trader must be attentive during market hours as their positions may quickly change from being profitable to out of the money. In addition, day traders may rely on dozens of constantly-changing metrics across a plethora of securities.

Swing Trading

Swing trading is based on identifying swings in stocks, commodities, and currencies that take place over a period of days. A swing trade may take a few days to a few weeks to work out. Unlike a day trader, a swing trader is not likely to make trading a full-time career, though a trader might choose to be a day trader and a swing trader.

Advantages of Swing Trading

Anyone with knowledge and investment capital can try swing trading. Because of the longer time frame (from days to weeks as opposed to minutes to hours), swing traders do not need to be glued to their computer screen all day. They can even maintain a separate full-time job (as long as they are not checking trading screens all the time at work). 

A swing trader can set stop-losses. While there is a risk of a stop being executed at an unfavorable price, it beats the constant monitoring of all open positions that are a feature of day trading. For this reason, swing trading can somewhat be automated if you know your positions in advance, set appropriate orders to execute at those levels, and have confidence in the execution of what you anticipate.

Swing trading often requires less upfront investment. Swing trading can be done with just one computer and conventional trading tools. It does not require the state-of-the-art technology of day trading. In addition, larger price movement is more likely to occur the longer you hold your position, and there is greater potential for larger returns compared to day trading.

Disadvantages of Swing Trading

Swing trades often need time to materialize. While your position is open, there is an increased risk of changing conditions that result in your position no longer being successful. In addition, your capital is tied up in a single position for a longer period of time; you must be willing to be illiquid for periods of time until it is the appropriate time to exit your position.

Though there is greater potential for larger returns, the opposite is also true. By holding onto your position overnight and even longer, your losses may accumulate if prices continue to move opposite of your early predictions.

Swing trading is also considered less exciting than day trading. As swing trading requires less attention and personal investment, it can often be seen as a less entertaining style of trading. Instead of relying to face-paced trends and immediate price action, swing trading is slower, more methodical, and can be seen by more investors as a safer but more boring approach.

Key Differences

Day trading and swing trading each have advantages and drawbacks. Neither strategy is better than the other, and traders should choose the approach that works best for their skills, preferences, and lifestyle.

Day trading is better suited for individuals who are passionate about trading full time and possess decisiveness, discipline, and diligence. Otherwise, if individuals are not willing to commit as much time to trading, swing trades are an effective way to set positions, execute fewer trades, and potentially earn greater profit.

The Bottom Line

Day trading success also requires an advanced understanding of technical trading and charting. Since day trading is intense and stressful, traders should be able to stay calm and control their emotions under fire. Finally, day trading involves risk—traders should be prepared to sometimes walk away with 100% losses. 

Swing trading, on the other hand, does not require such a formidable set of traits. Since swing trading can be undertaken by anyone with some investment capital and does not require full-time attention, it is a viable option for traders who want to keep their full-time jobs but also dabble in the markets. Swing traders should also be able to apply a combination of fundamental and technical analysis, rather than technical analysis alone.