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Day Trading or Swing Trading?

Hey Joe! Which is more profitable day trading or swing trading?

Wow! What a loaded question.

Many traders who are just starting out, want to know which type of trading they should focus on. Some traders prefer day trading while other traders prefer swing trading, and quite often traders like to mix it up a bit and trade both styles simultaneously.

The most important thing to keep in mind before making any type of decisions, especially those you may end up regretting down the road is to is to examine the pros and cons of each type of trading style and see how they impact you personally.

Day Trading is when all your trades are opened and closed within the same trading day. There are many benefits to this as well as many detriments as well. Let me begin by giving you a good idea of what I mean and then we will move on to swing trading.

Day traders must watch the markets all day long - Some traders regardless of what time frame they use, prefer to be glued to the markets during the trading day. They prefer to watch the markets instead of watching TV or reading books and they never seem to get bored of it. If that describes you then this is an upside.

However, most traders I speak with get burned out after a few months of watching the markets all day long. Many day traders just trade during the morning hours or during the afternoon break, but for the most part watching the screen all day is taxing for the majority of traders and is one of the biggest reasons why day traders get burned out.

Day Traders must have relatively quick reaction - Since day trading involves short term trades and short term means short term, you need to have very quick reflexes and reaction time so that you can have enough time to enter and exit the market before the trading set up is gone. There are traders who are scalpers; these are people who execute hundreds of mini trades each trading day. The speed and level of precision of watching these guys execute trades is nothing short of astonishing.

One major downside of this is many older people and when I mean older I'm talking over 40, just don't have the required focus or the desire to be fixated on execution all day. These traders look like they are playing video games; that's how intense their level of focus is. Many people just don't have the will or the inclination to sit for hours on end focused on trading set ups, while others can't get enough of it.

Now let's discuss the major benefit to day trading, when the day is over it's really over. You don't have to think about the next trading day because you don't have any positions in the market. Similarly, you don't have to worry about market risk. Many unforeseeable events can occur during the overnight period, by not having a position in the market you don't have to assume the risk that occurs with holding positions overnight.

Now let's talk a bit about swing trading. Generally, swing traders hold positions anywhere from 2 days to 7 days. Swing traders unlike day traders have to hold their position overnight. The detriment of this is increased risk but the upside to this is potential increased profit. Swing traders can achieve higher profit potential but this is achieved at a cost of incurring potentially more risk, so there is a trade-off.

Swing traders don't have to watch markets all day long, they can set their stop and limit orders and forget about the markets till the next day. I know one very successful swing trader who is an elevator repair man, full time. He monitors the markets after the close and before the open and doesn't watch the markets at all during the day. He's been doing this for over 15 years and he probably watches the market for about 30 minutes each day.

Further, since swing traders hold positions for several days if the market goes their way, they can potentially ride a good profitable move that lasts several days. Once again, the biggest downside to swing trading is having profits erode over night or alternatively, your loss getting worse when you can't do much about it.

After speaking with many day traders and swing traders, there is no right or wrong answer in this regard. It all comes to your personality, which is the key to trading. Some traders love day trading and some cannot do it no matter what. Others prefer swing trading and day trading seems like an athletic event to this crowd.

You have to match your personality to your trading style and that's the real key to all of this. That's the real answer to the question, "is day trading or swing trading more profitable."



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Friday, 23 February 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.