Like anything else, day trading and swing trading each have their own pros and cons. New traders always seem to be so enticed by the idea of day trading, but realistically they may be much better off as swing traders. Personally, I primarily focus on day trading and am even a full-time day trader now, but every once in awhile I still end up taking a swing trade that I just can't pass up.
I wanted to write this post to explain the differences between day trading and swing trading and go over some pros and cons of each. My hope is that it will help some new traders make the decision of which type of trading is right for them so they can focus on that and get on track to profitability!
First and foremost... what even is day trading?
Day trading is when you close a position within the same day that you opened it. This includes extended hours trading, which is both after hours and pre market. This also includes both long and short trades. A "long" trade is simply a typical buy and sell trade where you buy a stock in hopes that it will rise and you'll be able to sell higher for a profit. A "short" trade refers to short-selling. Short-selling allows you to profit from stocks going down by selling first then later covering to exit your position, ideally at a lower price.
Day Trading Pros:
Day trading allows you to take advantage on intraday market fluctuations and avoid having to hold a position overnight. As many traders have found out the hard way... news is usually released outside of the market hours and can have a significant impact on a stock's price. The great thing about day trading is that you'll never have to worry about overnight news negatively affecting your stock! Since day traders exit their positions before the market closes, they can have peace of mind at night knowing their capital is not at risk.
Another huge benefit to day trading is the ability to make substantial profits in only a few hours (or less) per day. As a full-time trader, many times I'll be in and out of multiple trades making over $1,000 in profits in under an hour! That kind of profit potential is really only possible with day trading and is why it can be such an attractive trading style for new traders.
Day Trading Cons:
One of the biggest cons of day trading is having to deal with the dreaded Pattern Day Trader (PDT) Rule. Simply put, the PDT Rule limits traders based in the U.S. to only 3 day trades per 5 business days while their trading account balance is below $25,000. Once their balance is above $25,000 they are free to day trade as much or as little as they'd like. The rule was made by the SEC with the expectation that it would save new traders from trading too frequently and by doing so, save them from losses. Realistically though, it just forces traders to hold high-risk trades overnight because they don't have anymore day trades available.
Another con of day trading is the increased risk. Of course, this goes hand in hand with increased potential for profits. Generally speaking, day traders focus on stocks with high volatility and large intraday ranges. This is exactly why it's possible to make such substantial profits in such a short period of time. However, you should always keep in mind that if you're not careful and if you don't have a proper trade plan, you can also take substantial losses in a short period of time.
Now that we know a bit about day trading... how does it differ from swing trading?
Swing trading is when you hold a position for anywhere from a few days to a few weeks. Just like day trading, this can also be either a long or short position. Swing traders will generally put their focus on longer-term chart timeframes like the hourly, daily, or even the weekly, whereas day traders mainly analyze short-term timeframes like the 1 minute or 5 minute.
Swing Trading Pros:
Unlike most day traders, swing traders mainly focus on more stable and less volatile stocks. Swing trading slow and steady stocks can take a lot of the stress out of your trading. For that reason, one of the big pros to swing trading is the idea of it being less stressful.
Another big pro to swing trading is that you do not need to analyze every single tick and every slight bit of movement while swing trading. As a swing trader, you'd be seeking a larger move over a larger period of time than a day trader. Because of this, once you find a great swing trade setup you can simply open your position and set some price alerts to tell you where the price has moved to, without having to constantly check yourself!
Swing Trading Cons:
As already mentioned in this post, swing trading involves the risk of holding positions overnight. This means your swing position will be at risk of being negatively affected by unexpected news. Unfortunately, many times when this happens there is not much that can be done other than exiting your position and taking your loss early the next morning when the market opens back up.
The other big cons associated with swing trading is patience. You need to be able to comfortably hold a position for days, weeks, or even months at a time without letting your impatience get to you. If you don't have much patience, you may struggle to hold your positions long enough to let your trade plan work out, which will inevitably affect your trade performance.
With some of these pros and cons in mind, you should be able to have an idea of which type of trading is best for you.
If you're someone that isn't afraid of a little more risk and are interested in learning ho to make some quick profits from the market... you may be better off as a day trader.
If you're someone that doesn't handle volatility well and are looking for more stable, longer-term profits... you may be better off as a swing trader.
Regardless of your trading preferences, Master the Market has education to benefit you! We offer 8 total courses and 70 practice quizzes teaching day trading, swing trading, and even long-term investing strategies with proven success.
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