Back to basics: Day trading vs. swing trading

Jason BondJason Bond ·

Before you start trading, you should be determine how active you want to be.

Only when you have decided if you want to trade on a daily basis versus buying-and-holding for several days or weeks can you truly figure out the trading style that suits you.

Traders are generally grouped into two camps — day and swing — and there are key differences you should understand as you plot your course.

Day trading vs. swing trading

The ultimate end goal for both day traders and swing traders is the same, namely generating profits. The holding period — and therefore the technical tools being used are what is different.

Day trading involves making multiple trades on a daily basis, as the name suggests. Day traders look to profit from price discrepancies, and may get into positions based off technicals, fundamentals or quantitative reasons. Day traders look to make a living from trading securities and typically don’t hold positions overnight.

By comparison. swing trading involves buying or shorting securities, and holding them for multiple days to weeks. Swing traders understand that a trade might take that long to work; unlike day traders, swing traders generally do not look to make trading a full-time job. Moreover, you can start swing trading with a small amount of capital, whereas a day trader is subject to the “pattern day trader rule.” This rule brands anyone making more than four trades in the same security over five business days as a “pattern day trader” provided that the trades represent more than 6 percent of the trader’s activity in that stretch. Pattern day traders must maintain minimum equity of $25,000 in their account on any day they plan to trade (and must meet that limit before they start trading for the day).

The bottom line

Decide what kind of trader you want to be. If you’re ready to “drop everything” and focus on the markets, you can be a day trader; if you don’t see trading as your full-time career, consider swing trading and learn about how to protect yourself during those short times when your attention is focused elsewhere.

#-#-#

   Jason Bond runs JasonBondTraining.com and is a swing trader of small-cap stocks.

Be a Better Stock Trader, Starting Today

Get the expert insights, tips and strategies you need to optimize your trading skills and profiles
START NOW