Updated: Sep 21, 2020
There are two categories of active traders: Day Traders - those to make numerous trade during the day based on technical analysis) and Swing Traders – traders who identify “swings” movements or patterns over period of a few days. Both are considered short term profit takers, compared to longer term position trading or investing, but they differ in their time frame.. Some traders prefer to be skillful day traders or even scalpers due to available capital, time and psychology while others would prefer take the slightly longer term swing trading approach. Others can choose to be long term position investors, do part time swing trading and also occasionally dabble in day trading. So which strategy is better?
The day trader makes numerous smaller profits over multiple trades per day and cap losses on unprofitable transactions, they do not hold their positions over night. Successful day traders need to have control over their emotions, possess discipline, diligence and make quick decisions (with fast reflexes) as they need to be highly skilled to scour multiple screens to identify opportunities, using short term buy and sell signals and quickly exploit them. It takes a certain personality to sustain day trader’s lifestyle. The day trader needs to not work full time, take a flexible schedule, working at own pace. They need to focus at least 2 hours per day excluding preparation time and chart/trading review which would take another 1-2 hours.. They however could spend a lot in commissions due to the high trading volume and also on special software. Capital requirements plays a part: Day trading stocks in the US requires an account balance of at least $25,000.
Swing trading makes multiple trades per week instead of days, leaving their positions overnight and have option to set stop losses. Their objective is to make fewer but substantial gains more slowly, using trend and momentum indicators and some fundamental analysis. They do not spend a lot of time in front of their screens and could do this is part-time basis, many swing traders invest one hr per night to locate new trades and update orders on current position a few times per week. They also do not need special equipment. However, they also have the risk of larger losses due to their longer holding positions. Maximum leverage for swing traders are usually two times one's capital compered to day trading where margins are four times one's capital.
So, to conclude, the choice of swing trading or day trading depends on a few considerations. Day trading needs to be done on the effective hours when the market is open and active, if this time is not available, swing trading will be better since they are not affected by the minute movements, they could look at daily charts and even place trades after market hours. Also, if you have difficulty sustaining focus at least 2 hours a day during market hours in a continuous basis or have problems with quick reflexes, while taking the mental the stress , you should choose to go for swing traders. Finally, if your account balance is below $25,000, there is no option to be a day trader.