Swing trading might appeal to traders who seek short- to mid-term profits but can’t commit to trading full time.
For some traders, it don’t mean a thing if it ain’t got that swing.
There are plenty of traders who love the thrill of monitoring charts and market news in real time during market hours. However, not everyone wants or has the chance to trade during regular trading hours.
Still others might prefer after-hours trading, whether that supplements their day trading or replaces it. But for swing traders, executing trades within slightly longer timeframes might work better for them. Whether they prefer swing trading for their schedule or for their strategy, swing trading is a popular approach for traders.
SWING TRADING VS. DAY TRADING
The main difference between swing trading and day trading is the amount of time between buying and selling. With day trading, traders buy and sell securities within a single trading day and are not as likely to hold a position overnight.
Swing trading also involves trades, but these trades occur over a few days to several weeks. A swing trader’s approach might rely on swings in prices with the intent of capturing short- and mid-term profits. By looking at multi-day chart patterns and indicators, swing traders try to identify overall trends and anticipate where an asset’s price may move next. They can also use fundamental analysis to reinforce their strategy.
Day trading and swing trading offer particular advantages depending on the trader. The time you’re willing to commit to trading, capital, and risk tolerance may determine your preference for each style. You can also day trade and swing trade at the same time, providing you can stay organized with your trading journal.
SWING FOR THE FENCES
Because they monitor trends over days or weeks rather than hourly changes, swing traders are not necessarily as active as day traders. This may appeal to those who have less time to devote during regular market hours, such as those balancing a day job with their trading activity. For many investors, this may also mean less burnout, since they don’t need to focus on trading screens all day.
Swing traders also avoid the pattern day trading rule, which can freeze intraday traders’ accounts who make too many trades within a week. Many traders unintentionally break the pattern day trading rule by enthusiastically trading on margin without considering the risks. Swing trading forces traders to slow down, which can help some make more deliberate choices about the trades they buy and sell.
This means swing traders tend to make fewer trades than day traders, yet these positions have the potential to make more substantial gains.
When there is a potential for more substantial gains, there is also a higher risk for more substantial losses. Because of this, margin requirements are higher for swing trading than for day trading. This could be welcome news for those with a more cautious risk tolerance, but it also means less leverage for swing trading than for day trading.
Another risk factor affecting swing traders occurs outside of regular trading hours. With trade positions subject to overnight and weekend market risk, the price could gap and open the following session at a considerably different price. Abrupt market reversals can result in substantial losses. Still, these gaps can work in your favor; setting up stop-loss and take-profit orders might minimize your risk.
Still, to say any one style of trading has more risk than another would oversimplify the idea. Every individual trader’s style influences the potential consequences of each trade. Instead, traders should choose a strategy that complements their approach, preferences, and lifestyle.
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