Home » Day Trading vs. Swing Trading: Which Strategy Is Better?

Day Trading vs. Swing Trading: Which Strategy Is Better?

A day trader assessing market movements

Financial markets are a popular investment vehicle for most people, and rightly so. The internet has increased access to various financial markets for traders. In addition, it has allowed them to access knowledge and market information almost instantly. These developments have resulted in a boon in financial trading and investing.

When most people think about investing in a financial market, their mind automatically wanders to the stock market. After all, stock markets have been around for centuries, and US stock exchanges list the world’s largest and most valuable companies. It’s not surprising that approximately 58 percent of Americans own stock.

When most people talk about investing in the stock market, they’re not referring to trading. Instead, they’re talking about passive investing. Passive investing is common because it doesn’t require a significant time investment. For instance, let’s assume you purchase Tesla shares. You believe the company’s long-term strategy will yield great returns and that the company will grow to become the largest automobile manufacturer in the next ten years. As a result, you invest in Tesla shares and don’t touch them again for another ten years. You’ll happily collect dividends on your shares whenever Tesla profits. But your goal isn’t to profit from price fluctuations.

Passive investing is growing more popular. Research shows that passive investing might overtake active investing by 2026. It could even accomplish this goal quicker if a bear market occurs.

But that doesn’t mean active investing is going anywhere. If anything, active investing significantly grew during the pandemic, according to a CNBC report. Active investing has also considerably grown for the options market. Research shows that options trading reached new heights in 2021. A record 39 million options contracts were traded daily in 2021.

If you’re interested in day trading, you’ll want to learn more about it. You’ve probably heard about day traders and swing traders. You couldn’t have missed them if you’ve used social media and the internet. You’ll often see your YouTube or Instagram feed littered with influencers advertising the latest trading platform or trading course.

Day and swing trading are both common active investing strategies. They’re also the most popular. Let’s delve deeper into them and how they work.

A swing trader at work

What is Day Trading?

Day trading strategies revolve around making multiple trades per day. It’s important to understand that day and swing traders have the same goal. They want to generate sizable returns on their trading capital by capitalizing on market movements and price fluctuations. The only difference is they have different approaches to achieving their goal.

Day traders like to open and close positions before the trading day ends. They don’t want to hold overnight positions because that exposes them to risk. Asset prices can fluctuate after the trading day during post-trading and pre-trading sessions. As a result, their positions have short-term time horizons.

Unfortunately, some drawbacks are associated with this approach. Day trading generally becomes a full-time job if you want to profit because you’ll have to keep updated on the latest market developments and price movements. You’ll also be making numerous trades. Therefore, you cannot leave your computer for more than a few minutes. Otherwise, you might miss out on favorable trades that could have gone your way.

Day traders generally use technical analysis to determine profitable trades. Technical analysis also helps them determine profitable entry and exit points for their trading endeavors. It’s a far cry from the fundamental analysis used by passive investors.

What is Swing Trading?

Swing trading is another popular active investing strategy. Like day traders, swing traders also want to capitalize on market movements for the best results. However, they’re more willing to hold positions for longer durations. They’re not as averse to overnight risk as day traders. Hence, they’ll often hold positions for multiple days or weeks.

Their longer time horizon also means swing traders generally make fewer trades than day traders. Furthermore, swing trading is less resource and time-intensive than day trading, meaning you don’t have to make it your full-time job to be profitable.

Swing traders generally use momentum indicators and oscillators to determine the right entry and exit points for profitable trades.

A trader watching price fluctuations

The Right Trading Strategy for You

If you’re new to trading options and stocks, you’ll want to select the right trading strategy for your needs. It’s important to understand that both swing and day trading strategies require significant market knowledge and understanding if you wish to be successful. In addition, real-world markets are always challenging. You’ll want to start by practicing your strategies with a demo account before putting your hard-earned money at risk.

Here are some factors to consider when choosing the right trading strategy for you:

  • Capital requirements: Day trading stocks in the US requires you to have at least $25,000 in trading capital. No such requirement exists for swing trading.
  • Freedom: Many traders argue that swing trading offers more freedom since you don’t have to invest as much time.
  • Stress: Day trading is generally more stressful than swing trading.
  • Pace: Day trading has a higher pace since traders make numerous trades within a single session.

GameStop’s price movement on an iPhone

Start Trading with Trading Alphas

Trading Alphas operates one of the best Discord options trading servers. If you’re a beginner to options trading, Trading Alphas can help you. Their diverse community of options traders has generated over $25 million in profits.

Consider checking out their website for more information. You can also contact them to learn more or sign up as a member today.