| Swing Trading | Day Trading |
|---|
| Frequency | Multiple trades per week | Multiple trades per day |
|---|
| Number of Transactions | Fewer | More |
|---|
| Time Horizons | Positions have long time horizons | Positions have short time horizons |
|---|
| Time Required | Less active time required | More active time required |
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| How You Trade | Can use your brokerage account | Need up-to-date trading software |
|---|
Trading Frequency
Day traders open and close multiple positions within a single day. In contrast, swing traders take trades that last multiple days, weeks, or even months.
Number of Transactions
Swing trading is still a fast-paced form of trading but involves making trades over a few days, weeks, or months. As a result, swing trading accumulates gains and losses more slowly than day trading. However, you can still have certain swing trades that quickly result in big gains or losses.
Suppose you're a swing trader who risks 50% of your capital on each trade to make 1% to 2% on your winning trades, and suppose you earn 1.5% on average for winning trades, losing 0.5% on losing trades.
You make six trades per month and win half of those trades. So, you could make 3% on your account balance in a typical month, reflecting the fewer fees. Over the year, that comes out to about 36%, which sounds good butoffers less potential than a day trader's potential earnings.
Day trading attracts traders looking for rapid compounding of returns. The term "day trading" comes from the fact that traders typically buy and sell securities within the same day, often multiple times per day.
Note
As a general rule, day trading has more profit potential than swing trading, at least on smaller accounts.
In the day trading community, it's common to follow the 1% risk rule. This rule states that you should never risk more than 1% of your portfolio on any single trade. For instance, assume you're a day trader who risks 0.5% of your capital on each trade.
If you lose, you'll lose 0.5%, but if you win, you'll make 1% (a 2:1 reward-to-risk ratio). Also, assume you win half of your trades. If you make six trades per day—on average—you'll be adding about 1.5% to your account balance each day, less trading fees. Even making 1% a day would grow your account by more than 200% over the year, uncompounded.
Time Horizons
Swing trading is a strategy that involves making trades over the course of more than a few days, weeks, or months. The goal is to capture short- to medium-term profits as trends change in a market.
Day trading uses multiple trades throughout one or two trading days to gather as many small profits as possible on daily price changes.
Time Required
Both day trading and swing trading require time, but day trading typically takes up much more time.
Day traders usually trade for at least two hours per day. Adding on preparation time and chart/trading review means spending at least three to four hours at the computer. If youopt to trade for more than a couple of hours a day, your time investment goes up considerably and becomes a full-time job.
Note
Both types of trading can take large amounts of time—swing traders might do more research while day traders do more trading.
Swing trading can take much less active trading time. For example, if you're swing trading off a daily chart, you could find new trades and update orders on current positions in about 45 minutes per night. These activities might not even be required on a nightly basis.
If you make trades that last weeks or months, youmay only need to look for trades and update orders once a week, bringing your time commitment down to about an hour per week instead of per night.
How You Trade
Since swing traders' time horizons are much longer, they can use their online brokerage accounts to create positions and trade. They are under much less of a time crunch and don't need to react within seconds of a price change.
To start swing trading, you will need to open up and fund an account with a brokerage. Once you are funded, you can begin placing trades on their platform.
If you're day trading, you'll need to have the most up-to-date software and technology to get the most out of your trading activity. Prices can change before you can even decide to make the trade, so automation is necessary to make trading profitable.
To begin day trading, you'll need to have an account set up with a broker and have a computer system and software that allow you to see and access all of the information you need.
Which Is Right for You?
Swing trading and day trading both require a good deal of work and knowledge to generate profits consistently. However, the knowledge required isn't necessarily "book smarts." Successful trading is the result of finding a strategy that produces results, an edge, or a profit over a significant number of trades and then executing that strategy repeatedly.
Note
Before you begin, take advantage of paper trading, which is the process of making hypothetical trades as if you were trading real funds.
Consistent results only come from practicing a strategy under numerous different market scenarios. That takes timeand should involve making hundreds of trades in a demo account before risking real capital. Many brokers offer a paper trading demo account for free to allow you to learn the platform and practice your strategies.
Here's what to consider when deciding:
- Stress: Day trading typically involves more stress than swing trading—it helps to know your stress tolerances.
- Pace: The pace of day trading can be rapid. Trades can carry on over days and weeks with swing trading.
- Focus: Because of the pace and short windows of opportunity, day trading requires sustained focus for extended periods. Swing trading still requires focus, but there are longer lapses between actions like entering or exiting trades.
- Freedom: Some argue that swing traders have more freedom, because swing trading takes less time than day trading.
Picking stocks for swing trading will involve a mixture of fundamental analysis and technical analysis. Fundamentally, you want stocks to exhibit certain traits based on the position you are taking. For example, if you take a long position (buy), you will want to see a reasonably priced valuation, strong earnings, and a healthy balance sheet. As for technical analysis, you can identify opportunities by using support and resistance levels and indicators that show volume and momentum.
Day trading is not as much about the type of investment as it is about trading on the price changes of the investment types you're trading. Volume and momentum are important so that you can get in and out of trades quickly. Technical analysis, or trading using indicators, is critical to day trading, because you can spot trends in prices as they occur.
Capital Requirements
How much money you need to begin swing or day trading depends on what you're going to be trading rather than how you're going to trade. Forex, stocks, and futures all require different amounts of capital to start with.
Note
Choosing day trading or swing trading also comes down to the trader's personality and preference.
Forex
While the amount of capital you need to have varies according to the market in which you're trading. No legal minimum exists to day trade the forex market. However, your broker might require you to maintain a specific amount of capital in your account.
One good rule of thumb is to start with at least $500, but $1,000 or more is best so that you can enter multiple trades.
Stocks
Day trading stocks in the U.S. requires an account balance of at least $25,000. No legal minimum exists to swing trade stocks, but, again, your broker might have a minimum amount you need to maintain.
You'll likely want to build up to and keep at least $10,000 in your account, preferably $20,000 if you're looking to draw an income from swing trading. One good rule of thumb for swing trading is to have about $1,500 to start with. This amount of capital will allow you to enter at least a few trades at once.
Futures
There is no legal requirement for minimum account balances for day trading futures, but your broker might require that you keep a minimum in a margin account as with the other types of day trading.
The amount needed depends on the margin requirements of the specific contract you're trading. For example, the Chicago Mercantile Exchange Group requires an account maintenance balance of $1,080 on E-Mini S&P 500 futures.
For day trading futures, it's best to start with at least $5,000 to $7,500. Theseamounts dependon the prices of the futures contracts you're trading. Day trading some contract types could require much more capital, while a few contracts, such as micro contracts, may require less.
A good amount to start swing-trading futures contracts is $10,000–$20,000.
The Bottom Line
One trading style isn't better than the other; they suit different needs and styles. Day trading has more profit potential given the higher frequency of trading. With that said, swing traders still have plenty of potential for profit.
Capital requirements can vary across the different markets and trading styles. Day trading requires more time than swing trading, while both take a great deal of practice to gain consistency. Day trading makes the best option for action lovers. Those seeking a lower-stress and less time-intensive option might do better swing trading.
Key Takeaways
- Day traders typically buy and sell securities within the same day, often multiple times per day.
- Swing trading is still a fast-paced form of trading but involves making trades over a few days, weeks, or months.
- Capital requirements vary for day traders and swing traders, depending on whether they trade the stock, forex, or futures markets.
- Day trading may be a good choice for those who want higher profit potential, while swing trading may suit those who want a lower-stress option.
Frequently Asked Questions (FAQs)
Which provides a more reliable return, swing trading or day trading?
Neither swing trading nor day trading is necessarily more reliable. Some traders will be better at swing trading, while others will find more consistency with day trading. One small caveat is that, on a long-enough timeline, broad market indexes like the S&P 500 tend to go up. Swing trading has a more flexible timeline, which gives bullish index swing traders a bit more cushion to rely on these statistical trends.
What time frames should you use for swing trading?
The best time frame will ultimately depend on your trading strategy. In general, the timeline of the trade should reflect the pattern, event, or indicator that inspired the trade. For example, if a cup and handle pattern takes weeks to form, then the bullish follow-through will likely take more than a day or two to happen. On the other hand, if the relative strength index is oversold on the hourly time frame, then that trade might play out over a matter of days rather than weeks.
FAQs
Day Trading vs. Swing Trading. The distinction between swing trading and day trading is usually the holding time for positions. Swing trading often involves at least an overnight hold, whereas day traders close out positions before the market closes.
Is swing trading better than day trading? ›
Day trading involves entering and exiting multiple trades within a single trading day. Swing traders open and close multiple positions over a few weeks. Therefore, trading frequency is higher in day trading as compared to swing trading.
Is day trading safer than swing trading? ›
Overall, swing trading is considered less risky than day trading, even though it is susceptible to overnight and weekend gaps. There are many reasons why swing trading is safer, such as the ability to trade part-time, reduced trading costs, and others.
What is the 1 rule for swing trading? ›
Risking 1% or less per trade is the standard for most professional traders. For day traders and swing traders, the 1% risk rule means you use as much capital as required to initiate a trade, but your stop loss placement protects you from losing more than 1% of your account if the trade goes against you.
How much does the average swing trader make? ›
For example Java Swing Developer jobs pay as much as $68,784 (189.9%) more than the average Swing Trading salary of $36,216.
What type of trading is most profitable? ›
Short-sell trading: Here, traders simply believe that the market is bearish and act accordingly. You borrow shares from a broker and sell them in the open market. You wait until the price falls enough for you to buy the stocks back at a lower rate. The difference acquired by this process is the profit.
Which trading is best for beginners? ›
Which type of trading is best for beginners? Beginners should consider starting off with swing trading, which means holding an investment for more than one day and less than a couple of months. It's less time-consuming and stressful than day trading. Stocks are particularly good for beginners to test the waters.
What is the downside of day trading? ›
Those involved in day trading often borrow or leverage capital each day in order to purchase additional assets−but it also substantially increases your risk. This sophisticated level of investing requires meticulous market and news monitoring, is fast moving, and involves a large amount of speculation.
How much money needed for swing trading? ›
There is no minimum requirement for minimum funds for swing trading in India. You can invest even INR 10,000 and go up to INR 50,000. However, you may want to ensure that you have enough liquid funds to buy the stocks in the quantity you deem best. It is advisable to identify your financial goals before you invest.
What is the safest time to day trade? ›
The opening 9:30 a.m. to 10:30 a.m. Eastern Time (ET) period is often one of the best hours of the day for day trading, offering the biggest moves in the shortest amount of time. A lot of professional day traders stop trading around 11:30 a.m. because that is when volatility and volume tend to taper off.
However, we see many new traders start small with just $1,000 in their accounts. This is a pretty good starting place for new traders because your risk is pretty limited.
Can you start swing trading with $100? ›
With some brokers, you can deposit as little as $10 into your account and start trading, while others have relatively low deposit requirements, such as $100 or $200. However, trading with a small account also has its drawbacks, as you risk overtrading your account to reach any meaningful profits.
What is the 2% rule in swing trading? ›
One popular method is the 2% Rule, which means you never put more than 2% of your account equity at risk (Table 1). For example, if you are trading a $50,000 account, and you choose a risk management stop loss of 2%, you could risk up to $1,000 on any given trade.
How many swing traders fail? ›
We've seen estimations that as many as 90% of swing traders fail to make money in the stock market – meaning they either break even or lose money. That suggests that the average swing trading success rate is somewhere around 10% – meaning 10% of swing traders actually bring in profit over the course of a year.
Can you make a living off of swing trading? ›
When done correctly using sound trading rules, swing trading can absolutely produce big gains. Even though you're aiming for 5-10% profit in a swing trade, those gains add up quickly when you reinvest the profits in new stocks and grow the overall size of your portfolio.
What is the most successful swing trading strategy? ›
10- and 20-day SMA. Another of the most popular swing trading strategies involves the use of simple moving averages (SMAs). SMAs smooth out price data by calculating a constantly updating average price which can be taken over a range of specific time periods, or lengths.
What is the easiest instrument to day trade? ›
The best instrument for day trading is futures as they are highly liquid commodities, like crude oil and gold. They offer diversification of assets from equity-based or index-based trading.
What is the 5 3 1 trading strategy? ›
Intro: 5-3-1 trading strategy
The numbers five, three and one stand for: Five currency pairs to learn and trade. Three strategies to become an expert on and use with your trades. One time to trade, the same time every day.
Can I be rich day trading? ›
It's easy to become enchanted by the idea of turning quick profits in the stock market, but day trading makes nearly no one rich — in fact, many people are more likely to lose money.
How much money should a beginner day trader start with? ›
The amount of money you need to begin day trading depends on the type of securities you want to buy. Stocks typically trade in round lots or orders of at least 100 shares. 1 To buy a stock priced at $60 per share, you will need $6,000 in your account.
Welding is one of the occupations that are easy to learn in the skilled trades. You can learn how to weld within less than six months of practical exposure. Suppose you enjoy something that pays strong and has proper hours. Welding is a job you can drop your teeth into while also getting prospects for advancement.
How much should a beginner start trading with? ›
If you must start trading right away, you can begin with $100. For a little more flexibility, $500 can lead to slightly more income or returns. However, $5,000 might be best, because it can help you produce a reasonable amount of income that will compensate you for the time you're spending on trading.
Why do so many day traders fail? ›
This brings us to the single biggest reason why most traders fail to make money when trading the stock market: lack of knowledge. We can also put poor education into this arena because while many seek to educate themselves, they look in all the wrong places and, therefore, end up gaining a poor education.
Why do so many fail at day trading? ›
Why day traders fail is mostly because they don't understand the ecology of the markets, have no game plan, trade too big, and don't know their risk tolerance. Day trading certainly holds promises of a fast-paced working environment with high returns.
Do most people fail at day trading? ›
What percentage of day traders make money and how many fail? Approximately 1-20% of day traders make money day trading. Just a tiny fraction of day traders make any significant amount of money. That means that between 80 to 99% of them fail.
Can I start swing trading with $50 dollars? ›
You can start trading with an initial investment as low as $50. However, the amount of money you start with is a significant determinant of your ultimate success and will influence your trading experience and just because you can start trading with $50 doesn't mean that you should.
What is the best timeframe for swing trading? ›
Start with trades to hold the trade for a few days. This is called 'Positional Trading' or 'Swing Trading'. An active swing trader usually keeps his trading position open for a few days. The best lookback period for a swing trader is 6 months to 1 year.
What tools do swing traders use? ›
Swing traders will use tools like moving averages overlaid on daily or weekly candlestick charts, momentum indicators, price range tools, and measures of market sentiment. Swing traders are also on the lookout for technical patterns like the head and shoulders or cup and handle.
Is $1000 enough to day trade? ›
To get started with day trading it is possible to do it with less than $1000 but not by a lot. As we noted, day margins on the E-mini S&P are commonly $500. The less money you have to day trade the less of a cushion you will have in case of a loss of your very first trade.
What is the number one rule in day trading? ›
The 1% rule for day traders limits the risk on any given trade to no more than 1% of a trader's total account value. Traders can risk 1% of their account by trading either large positions with tight stop-losses or small positions with stop-losses placed far away from the entry price.
Many people believe that you need at least $1,000 to start doing day trading, but that's not necessarily the case, in fact, you can start with little money. With careful planning and execution, it is possible to start day trading with just $500.
How many lots can I trade with $100? ›
Fortunately, any viable trading plan can be traded with a $100 account since most brokers will let you trade in micro units or 0.01 lots.
Can I swing trade without 25k? ›
If a customer's account falls below the $25,000 requirement, the customer will not be permitted to day trade until the customer deposits cash or securities into the account to restore the account to the $25,000 minimum equity level.
Do you need 25k to swing trade? ›
First, pattern day traders must maintain minimum equity of $25,000 in their margin account on any day that the customer day trades. This required minimum equity, which can be a combination of cash and eligible securities, must be in your account prior to engaging in any day-trading activities.
How much do day traders make per month? ›
Day Trader Salary
| Annual Salary | Monthly Pay |
|---|
| Top Earners | $132,500 | $11,041 |
| 75th Percentile | $96,500 | $8,041 |
| Average | $76,989 | $6,415 |
| 25th Percentile | $34,000 | $2,833 |
Swing trading can definitely make you rich. With an average annual return of around 30%, you would double your capital every three years, which will grow to huge amounts over time. Warren Buffet, the famous investor often dubbed the “oracle of Omaha”, has built his fortune by achieving returns of around 20% annually.
What percentage of day traders make money? ›
Studies have shown that more than 97% of day traders lose money over time, and less than 1% of day traders are actually profitable.
What is the 6 month swing trade rule? ›
The short-swing profit rule is a Securities and Exchange Commission (SEC) regulation that requires company insiders to return any profits made from the purchase and sale of company stock if both transactions occur within a six-month period.
What is the thumb rule of swing trading? ›
The general rule of thumb is to go long only if the price is up trending, and to go short only if the price is down trending. By following the existing trend in place, you will substantially improve your odds of success as a trader.
Why 90% of traders lose money? ›
One of the biggest reasons traders lose money is a lack of knowledge and education. Many people are drawn to trading because they believe it's a way to make quick money without investing much time or effort. However, this is a dangerous misconception that often leads to losses.
Swing trading can be challenging, as it involves making quick decisions based on market movements and potentially holding positions for only a few days. It also requires a solid understanding of technical analysis and the ability to monitor the markets closely.
Who is the most profitable swing trader? ›
Simons, the most successful investor in history, is a swing trader.
Why are day traders not millionaires? ›
Aside from the statistical improbability that all good traders can be millionaires, there are other more tangible reasons why even great day traders aren't millionaires. These reasons include the “personal ceiling” and “market ceiling.”
How much does the average day trader make a day? ›
Average Salary for a Day Trader
Day Traders in America make an average salary of $116,895 per year or $56 per hour. The top 10 percent makes over $198,000 per year, while the bottom 10 percent under $68,000 per year.
Do swing traders pay a lot in taxes? ›
Swing Trading Taxes Explained
Many hobbyist traders who cashed out on crypto and meme stocks in recent years had no idea they'd end up having to pay huge capital gains tax the following year. It's important that you set aside any profit you realize in trading.
Which trade is best for swing trading? ›
Stocks to consider for swing trading
- Catalyst.
- Volume.
- Volatility.
- Apple (AAPL)
- Facebook (FB)
- Microsoft (MSFT)
- Amazon (AMZN)
- Alphabet (GOOGL)
Swing traders will earn much more profit per trade – but you'll have to be patient, as you may not realize that profit for a few weeks in some cases. Scalpers, on the other hand, earn minuscule profit percentages per trade. After all, this strategy entails capitalizing on minor price movements over a few minutes.
How do you make big money swing trading? ›
The key to profit from swing trading lies in picking up the right stocks; stocks with a propensity to grow in short duration. Swing traders, while waiting for a larger profit to emerge, make several small wins to add to their ultimate profit. This helps them secure more substantial profit volume.
Do swing traders make more money? ›
When done correctly using sound trading rules, swing trading can absolutely produce big gains. Even though you're aiming for 5-10% profit in a swing trade, those gains add up quickly when you reinvest the profits in new stocks and grow the overall size of your portfolio.
Are swing traders more successful? ›
We've seen estimations that as many as 90% of swing traders fail to make money in the stock market – meaning they either break even or lose money. That suggests that the average swing trading success rate is somewhere around 10% – meaning 10% of swing traders actually bring in profit over the course of a year.
Stress: Day trading typically involves more stress than swing trading—it helps to know your stress tolerances. Pace: The pace of day trading can be rapid. Trades can carry on over days and weeks with swing trading.
What are the disadvantages of swing trading? ›
Swing trading offers advantages such as maximizing short-term profit potential, minimal time commitment, and flexibility of capital management. Key disadvantages include being subject to overnight and weekend market risk, along with missing longer-term trending price moves.
What is the 5 3 1 rule in trading? ›
Intro: 5-3-1 trading strategy
The numbers five, three and one stand for: Five currency pairs to learn and trade. Three strategies to become an expert on and use with your trades. One time to trade, the same time every day.
Can you live off swing trading? ›
Yes, it is possible to make money through swing trading. However, there are no guarantees in the stock market and swing trading carries risks like any other investment approach.
What is the most profitable swing trading strategy? ›
Wait for the price to break below Support. If the price breaks below Support, then wait for a strong price rejection (a close above Support) If there's a strong price rejection, then go long on the next candle open. Set your stop loss 1 ATR below the candle low and take profits before Resistance.
Is 5% on a swing trade good? ›
Swing Trading Strategy
Rather than targeting 20% to 25% profits for most of your stocks, the profit goal is a more modest 10%, or even just 5% in tougher markets. Those types of gains might not seem to be the life-changing rewards typically sought in the stock market, but this is where the time factor comes in.
Why is day trading harder than swing trading? ›
Swing traders stay active for a few hours daily and don't stay glued to the computers the whole day. Day trading requires full dedication and time. It takes less expertise to swing trade than day trading.
Should a beginner do swing trading? ›
Swing trading is often considered better for beginners compared to scalp trading or day trading. Swing trading requires less skill and trading expertise.
