Here are the main similarities between swing trading and day trading:
- Required knowledge and practice,
- Short-term aims, and
- Can be used on other market instruments.
And here are the most important differences between swing trading and day trading:
- Timing of trades,
- Potential returns,
- Capital requirements,
- Level of required expertise, and
- Startup costs.
In this article, we’ll define swing trading and day trading and tell you everything you need to know about the similarities and differences between swing trading and day trading.
Fundamentally, day trading and swing trading are two different trading strategies. Swing trading involves holding on to securities for a period of time such as days or weeks and day trading entails making trades multiple times a day.
Day trading usually requires a trader’s time throughout the day, while swing traders can spend less time per day on trades. Day traders usually trade for a minimum of two hours per day. If you include the amount of prep time, research, and review a day trader is doing, the amount of time that he or she spends on trading would be at least four or five hours per day, at minimum. Additionally, day traders need to make trades while the market is open, during limited periods of the day that correspond with typical working hours. For this reason, day traders often make trading their full-time job.
Swing trading, by contrast, can take significantly less time on a day-to-day basis. A swing trader could, for example, make updates on current positions and new trades for 45 minutes to an hour each evening. Swing traders don’t need to keep tabs on the minute-to-minute fluctuations of the market. They also don’t have to make trades during the day while markets are open. Swing traders usually look at daily or even weekly trends and then make their moves at the end of the day, while markets are closed.
In fact, a swing trader may not make any trades on a daily basis, but could make trades every few days or weeks, depending on the trading strategy that he or she is following.
Similarities Between Swing Trading and Day Trading
Both swing trading and day trading require knowledge and practice in trading; they both have similar short-term aims; and both approaches can be used on other market instruments.
Required Knowledge and Practice
Both swing traders and day traders need to have a good understanding of how markets work, the fundamentals of technical market analysis, and lots of practice. Continual practice will allow you to become a better trader. These are the kinds of skills you can learn from RagingBull’s team of expert traders.
Swing trading and day trading also both have similar short-term aims. In spite of the differences in the timeframe of trades, both types of traders are aiming to make money over a shorter period of time.
Can Be Used on Other Market Instruments
Finally, both day trading and swing trading are techniques for making money on the stock market, but both can also be used on other market instruments, such as EFTs.
Differences Between Swing Trading and Day Trading
Sometimes clients come to us with questions like “is swing trading better than day trading?” The shorts answer is, neither one is better than the other. Rather, which style of trading someone adopts depends on their financial goals, personality, level of experience in trading, and a host of other factors.
Here we’ll discuss and explain the differences between swing trading and day trading.
Timing of Trades
The most dramatic difference between swing trading and day trading is the timing of trades. Day trading usually means making a number of trades in a single day. In other words, day trading is short-term trading. Day traders usually don’t own securities or keep positions overnight. Rather, their goal is to make small profits from trading stocks as well as currencies and commodities in short-term trades throughout the day.
Day traders will often open and close many positions within a single day. In contrast, swing trading is based on identifying trends in the markets that occur over the course of days or weeks. Swing trading, therefore, usually requires keeping a position open or owning a security over the course of days or weeks.
Due to these differences in the pace of trading, day trading and swing trading also attract different potential returns.
Day trading strategies are designed to take advantage of rapidly compounding returns. Think of it this way: let’s say a day trader risks 0.5 percent of her capital on each trade she makes. However, if she wins on a trade, she’ll make back one percent. If she wins half of her trades on a particular day, and makes six total trades that day, then she’ll add about 1.5 percent to her account balance by the end of each market day (minus any trading fees). While this means that day traders can make rapid gains, it’s also entirely possible to lose a lot in one day for exactly the same reason.
In contrast, swing trading accumulates both wins and losses at a slower pace. Each individual trade can still be risky, and can still incur significant gains or losses. But since a swing trader is meaning fewer overall trades on a daily or weekly basis, then her account balance will be changing at a slower pace than our day trader example.
Day trading and swing trading also have different capital requirements. In the United States, day trading requires an account balance of a minimum of $25,000. In contrast, there is no legal account balance minimum for swing trading. We usually recommend that a swing trader have a minimum of $10,000 in their account, and something closer to $20,000, if you’re aiming to make an income from trading. Thus, day trading typically has higher capital requirements than swing trading on stock markets.
There are no legal minimums for trading on the forex market, but we usually recommend that traders start with at least $500 in their accounts. Although, a balance of $1,000 or more is preferable. Additionally, to day trade futures, we recommend starting with at least $5,000 to $7,5000 in capital. Swing traders in futures contracts need to start with as least $10,000 in capital, but it’s better to have $20,000 or more, depending on the margin requirements of the contracts that you’re trading.
Level of Required Expertise
Day trading and swing trading also require different levels of expertise needed to be successful in trading. Beginners are usually much better off with swing trading. Swing trading only really requires access to the internet and software that you can access for free, or maybe already have on your computer. There are high-quality, free resources available that can be used to make money through swing trading.
In contrast, day trading requires having access to cutting-edge technology, the latest software, and more to stay on top of the game. This is because the level of expertise — as well as the level of access to the requisite tools — day trading requires is significantly higher than it is for swing trading. Swing trading is, therefore, much more accessible for those who are just starting out, or who want trading to be a side gig but not their day job.
Finally, the startup costs for day trading and swing trading vary. Day traders are typically competing with other market professionals, such as high-frequency traders and hedge funds, who themselves have access to a number of trading advantages like the tools mentioned above. Day traders need to also have access to these tools, as well as a trading platform. All of the requires a lot of cash, meaning that the startup costs are high.
On the other hand, swing trading requires basic tools and less time investment, which means that the startup costs for swing trading are much lower. You can even access free education resources through RagingBull’s online Knowledge Base to learn more about how to make money through swing trading.
In fact, for a limited time, you can also get a free copy of our options handbook to make your trading practice even stronger and more lucrative. Interested in learning more about swing trading vs. day trading? Make an appointment on your own time with one of your expert trainers today. They can guide your investment strategy and help you learn how to make more money on the stock market.