Day trading v swing trading – The pros and cons

  • By Author

  • July 6, 2018
  • 6:57 pm BST

Which one will net you more profits when it comes to forex trading advice: CFD trading or stock trading? Or for that matter, being a day trader or a swing trader? If you’re a day trader, you purchase and sell currency pairs within the same day – i.e. after the stock exchange opens and before it closes – with the intention of making a profit during this time. You therefore enter and exit a position intra-day. In swing trading, you may hold the same position overnight, or even longer.

The only differences are likely to be:

  • If you’re a day trader, your profits are likely to be smaller, but more frequent.
  • If you’re a swing trader, you’ll take a profit every 1 to 30 days (not in a matter of hours), and will likely look for trend reversals and retracements for your entry or exit point.

Day trading – The main pros

There are more pros than what we’ve listed here, but these are the main takeaways:

  • Taking smaller profits means minimising risk
  • You can actually make money more swiftly if you have your pulse on the money
  • You are always actively helping to drive the market in some way rather than being a passive trader
  • Closing your position by the end of the day allows you to take advantage of interest earned
  • Exiting or closing a position by the end of the day minimises risk because any number of surprises, such as negative economic or policy data, can move market sentiment overnight.

Swing trading – The main pros

  • It is less complicated to take bigger profits and manage stop losses. You minimise your risk of exiting a position early because the distance between you and the market allows you to evaluate things more clearly. Plus, you probably take profits at a much healthier ratio than a swing trader precisely because your stop loss is positioned further away, and you can stretch your profit margin that little bit more without losing.
  • Essentially, swing trading is easier to master and execute than the intricacies that accompany day trading. You’ll have a clearer picture of moving averages, for starters.
  • You can hold down a day job and still be a swing trader, so it is perfect for rookies as well as professionals who can afford to have the best of both worlds by enjoying life and taking bigger profits.
  • Swing trading allows you to evaluate a trend fully so you can extract the maximum profits, due to the fact that you are not bound by intra-day trades.

Day and swing trading – the cons

There are disadvantages to both trading strategies as well:

  • As a day trader, you will incur more fees due to the number of transactions. You will also take lower profits, and because you need to read the ‘fine print’, in a manner of speaking, it can take you longer to master than swing trading. As a small mistake could cost you dearly, you also need supreme discipline and focus.
  • As a swing trader, it takes more time to make a profit, so you need to practice patience. You also need the right mental attitude, because many swing traders become attached to a trade merely by virtue of having been in it for a long time. This can cloud your judgement regarding exiting that trade, for example.

When it comes down to it, which is better?

Because either type of trading should be informed by personality fit, trading goals, strategies and time available (among other factors), there is risk in either strategy – just as there is risk whether you trade in CFDs, derivatives, forex or anything else. Knowing the parameters of what you are getting into means you also have the benefit of understanding the risks of either kind of trade.

Successful traders are smart traders who understand that, at the end of the day, appreciating risk and negotiating it optimally – no matter what the instrument or strategy is – is ultimately what determines more sustained profit taking than anything else.