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Day Trading vs Swing Trading: Which One is the Better Strategy?

InvestorEducation / Learn to Trade Dec 06, 2017 - 02:15 PM GMT

By: Boris_Dzhingarov

InvestorEducation

Which is the most appropriate trading strategy to earn a living? Well, that depends. First of all, different markets demand different strategies. That said, it narrows down to your style, personality and circumstances; but it takes more than just that to find a strategy that best suits you.


The development and application of any trading strategy has to follow certain steps. Some of these steps include formulation, optimization and monitoring of the trading performance. Now, trading strategies can either be long-term or short term; and many traders would rather profit from the short-term investments.

Day trading and swing trading are the most popular short-term trading strategies. Many active traders would often group themselves into either of these two camps. However, several finance analysts such as those at Olsson Capital have had to tackle the question of which of these two trading approaches is better. Traders are always asking whether they should day trade or swing trade.

What is day trading?
Day trading refers to the method of buying or selling within the same day. No position is held overnight; all are closed out within the same day they are taken. This kind of trading is more appropriate for professionals; it involves a very unique skill set that can be tough to master.

When trading, day traders often enter and exit a trade in only a matter of minutes. They have to make quick decisions based on sophisticated charting systems and complex analysis. Their goal at the end of the day is to make little profits on numerous trades such as currencies, stocks or commodities.

Clearly, day trading is a very risky trading approach. That is why brokerage firms have to confirm whether clients are well aware of the risks involved, and if they possess the required trading experience.

Swing trading
Swing traders are allowed to sell or buy for more than a day. This approach attempts to capture gains in any financial instrument within a day’s hold to several weeks. Swing traders also use technical analysis to look for stocks that have a short-term price momentum. Besides analyzing the price patterns and trends, the traders may also use the intrinsic or fundamental value of stocks.

Unlike day trading, swing trading assumes a bigger price move and price range and hence needs careful position sizing to minimize losses.

Day trading or swing trading?
Both day trading and swing trading are approaches that seek to make short-term gains on price fluctuations in the trading market. However, the two are also different. Each strategy features the good and bad side. Therefore when deciding between the two, it is worth weighing all sides of both choices. Then, make a decision based on your preferences, skills and lifestyle.

Risks
Day trading definitely has more risks involved. For instance, this methodology can put you in debt very fast. This is because day traders generally use borrowed money, meaning that they put themselves at a higher risk of losing more when the worst happens. The good thing about this approach is that it offers you more control over your trading activity. You become your own boss and can monitor stock trends fully on your own.

On the other hand, swing trading utilizes fewer margins per trade. In fact, you do not have to use it if you do not want to. This in turn minimizes your risk significantly. However, swing traders can suffer substantial losses especially because they get to hold their positions longer than day traders.

Commitment
Day trading will require a lot of your time and effort. During trade, you have to change positions at very small intervals to ensure that you are still in a profitable place. Most day traders operate full time; it is more stressful tackling day trading alongside another occupation. Sometimes even getting a bathroom break is almost impossible.

Swing trading on the other side is less stressful. You have more breathing space and you can even multitask and still get things done. However, you still have to monitor your positions and make sure that you are in a good position.

Performance
With day trading, you get an instant feeling of accomplishment because at the end of each day you can study your general performance by calculating profits as well as losses. However, with swing trading, it takes some time before you can see the results of your efforts. You therefore need patience; you will often go through unknown periods, waiting to see how the stock trends turn out.

By Boris Dzhingarov

© 2017 Copyright Boris Dzhingarov - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


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