Day Trading vs Swing Trading

What are the main advantages of Day Trading and Swing Trading? What is the best approach for me?

This is a question I get asked often by my trading friends, especially those new to trading. The vid above goes over this topic somewhat and below I expand on the main advantages of each trading approach.

What is Day Trading?

A Day Trader is someone who opens and closes his trades by the end of the trading day. A Day Trader will usually not carry over positions to next trading day.

What are the main advantages of Day Trading?

The main advantages of this trading approach are:

1. Day Traders can trade while they feel the most alert

Because they only trade for a limited period of time and close everything by the end of the day they avoid the round of clock trading that is usually required by Swing Trading.

Day traders can decide to just trade the first 4 hours of a trading day, or even just the first hour and then go fishing for the rest of the day.

2. Day Traders can pinpoint their entries and exits better then Swing Traders

Because day traders watch the market intensely during the day, they acquire a sense of the way price moves during the day, a so-called ‘’feel’’ for the market. This allows them to pinpoint their entries and exits better then swing traders.

3. Day Traders limit their overnight or weekend risk

Day traders close all their trades by the end of the day and do not carry them over thus eliminating the overnight risk that inherent in swing trading. Swing traders usually have to trade round the clock because their trades last much longer.

Swing traders are also exposed to market gaps that happen during the weekend as trading these systems usually requires the holding of trades past the end of the week.

4. Day Traders don’t pay the daily rollover

Because day traders close all their trades by the daily Rollover time, they do not pay the daily rollover fee. Swing traders usually carry their positions over, so they have to factor in this added cost to their trading.

What is Swing Trading?

Swing Trading is a style of trading where traders hold trades for one to several days. Swing traders generally use technical analysis to enter and exit their trades.

Their approaches can differ, with some employing breakout trading strategies while others prefer to trade the ranges.

What are the main advantages of Swing Trading?

1. You don’t have to constantly watch the charts or quit your job

You don’t have to watch the market as closely when you’re swing trading. If you’re trading off the 4h or daily chart, for example, you can check the market every 4 hours or even just once a day. You can do it while you’re at work, during your scheduled breaks.

2. Swing Trading is the easier approach to learning, especially for newer traders

The Swing Trading approach is a lot easier to learn so it is generally recommended for newer traders. New traders are usually advised to start trading on the daily or 4h charts and work their way down to the lower time frame charts.

3. Lower trading costs on a percentage basis

Although the trading costs and spreads for all traders are the same, on a per trade basis the cut or the percentage that the spread takes from day traders is a lot higher.

If you’re day trading and aiming for 10 pips per trade with a 10 pip stop loss, a 2 pip spread will eat up 20% of your profit. A swing trader may aim for 100 or 200 pips per trade while risking 100 or 200 pips.

His cost per trade will only be 1-2% not 20% like in the day trader’s case.