For both day traders and swing traders, profitable trading principles are the same, what changes are the time frame on which they operate and the distinct psychology required. There is no right or wrong way to trade, on all time frames there are lucrative investors, but let’s address the pros and cons of day trading vs swing trading.
Day traders do not carry any risk overnight as they close their positions every day before the end of the market. Swing traders are at risk overnight as they can carry multi-day positions, but they also have the opportunity to profit on overnight moves and trends that continue for days to weeks. Day traders do not care about losses in opening market gaps since they are in cash with no open positions.
Typically a day trader has to trade larger positions than a swing trader to render the smaller intra-day price changes more significant. A swing trader will trade in smaller lots, searching for gains that can be larger than normal over several days.
For a day trader, speed is most important because they chase quicker profit and have less room for error. There is more flexibility for a swing trader to enter and exit trades because they trade off a daily chart instead of the intra-day chart. Day traders typically require multiple screens for faster access to their watch list and rapid trading, whereas swing traders will trade from their phones.
Day traders typically have more screentime than day traders because they are able to trade from open to close. Typically, a swing trader only has to check-in at the open and close to modify their positions. If a swing trader has a successful trade it is possible that they will just let it ride and do nothing in the day. A day trader typically has to sit and watch for the exit for their position. With more screen time and watching price action, a day trader may have more anxiety but a swing trader must be able to walk away from the monitors and not think about it and check in every few minutes.
Swing traders typically have more spare time to do other things in a day because they don’t have to track every shift in price. Day traders need to recognize their trading hours as part of their business costs along with their capital gain. A swing trader aims mostly at the return on their investment while a day trader has to weigh the return on their assets and the return on the market during the time they spend trading.
Day traders should restrict their screen time to trading only where the most market activity is, like the day’s opening and closing. Swing traders will only trade on signals from the end of the day if they want to limit their screen time.
Profits from day traders are limited to intra-day movements only, but their loses are also limited to intra-day moves as they have to close-out by market close.
For both day traders and swing traders, the rules for profitable trading are the same. Both need major wins and contained loses, trade execution consistency, and a profitable trading system to make money. The problem is what time frame suits the temperament of an investor of action and screen time, risk tolerance, and expectations of return.
- Due to more activity than a swing trader, a day trader can have more commission costs and slippage.
- Trading on the day requires a lot more focus and energy to execute each day than swing trading.
- A day trader wants leverage in order to be able to cycle through assets and to keep trading before the trade settles.
- Due to less time with risk exposure, a good day trader can create better risk-adjusted returns on capital.
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