Is Swing trading better than day trading?

The time frame on which a trader opts to trade can significantly impact trading strategy and profitability. 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. These two different trading styles can suit various traders depending on the amount of capital available, time availability, psychology, and the market being traded.

One trading style isn't better than another, and it really comes down to which style suits an individual trader's circumstances. Some traders opt to do one or the other, while others may be day traders, swing traders, and buy-and-hold investors all at once.

Day Trading vs. Swing Trading

The ultimate end goal for both day traders and swing traders is the same; namely, generating profits. The holding periods — and therefore the technical tools being used — are what makes the difference.

Day trading involves making multiple trades on a daily basis, as the name suggests. According to the pattern day trader (PDT) rule established by the Financial Industry Regulatory Authority (FINRA), investors who make at least four “round trip” trades within five days are considered day traders. Day traders look to profit from price discrepancies. They may get into positions based off technicals, fundamentals, or quantitative reasons. Day traders look to make a living from trading securities and typically don’t hold positions overnight.

By comparison, swing trading involves buying or shorting securities and holding them for multiple days to weeks. Swing traders understand that a trade might take that long to work. Unlike day traders, swing traders generally do not look to make trading a full-time job.

Moreover, you can start swing trading with a small amount of capital, whereas a day trader is subject to the “pattern day trader rule.“

This rule brands anyone making more than four day trades in the same security over five business days as a “pattern day trader.” This is provided that the trades represent more than 6 percent of the trader’s activity in that stretch. Pattern day traders must maintain minimum equity of $25,000 in their account on any day they plan to trade (and must meet that limit before they start trading for the day).

Here’s When You Should Choose Day Trading

Check out these main points to summarize when it might be ideal for you to be a day trader:

• You meet the capital requirements necessary to satisfy the FINRA pattern day trader rule and SEC rule, if and when these are applicable to your case.
• You are ready to study up-to-the-minute trends and take necessary action at a rapid pace.
• No day is ever dull for you and you seek that adrenaline rush every minute.
• You are diligent, disciplined, and strong-willed.
• You do not stress over things easily and most importantly, can manage stress really well.
• You understand the risks associated with making major losses and ending up in debt, especially if you’re trading on margin.
• You have the knowledge and expertise needed to make stupendous profits that characterize day trading.
• You are ready to make small profits on a day-to-day basis by making small trades.

Here’s When You Should Choose Swing Trading

If the description below rings a few more bells, it might mean that a swing trading strategy is a better choice for you.

• You are ready to wait from a few weeks to months while studying market movements.
• You are already into a full-time job and do not have a lot of time to spare for your trading activities.
• Constant monitoring is not your cup of tea. You do not want to keep babysitting market moves every single minute.
• You want a less stressful life with reduced risk levels compared to day trading.
• You do not want to only rely on making a living trading stocks.
• You do not have a lot of capital available to invest.
• You do not yet have advanced levels of technical trading knowledge.

Focus, Time, and Practice

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 results from finding a strategy that produces an edge, or a profit over a significant number of trades, and then executing that strategy over and over again.

Some knowledge on the market being traded and one profitable strategy can start generating income, with lots of practice. Each day prices move differently than they did on the last. This fluctuation means the trader needs to be able to implement their strategy under various conditions and adapt as conditions change.

This need for flexibility presents a difficult challenge. Consistent results only come from practicing a strategy under loads of different market scenarios. That takes time and should involve making hundreds of trades in a demo account before risking real capital.

Choosing day trading or swing trading also comes down to personality. Day trading typically involves more stress, requires sustained focus for extended periods, and takes incredible discipline. People that like action, have fast reflexes, or like video games and poker tend to gravitate toward day trading.

Swing trading happens at a slower pace, with much longer lapses between actions like entering or exiting trades. It can still be high stress, and also requires immense discipline and patience.

It doesn't require as much sustained focus, so if you have difficulty staying focused, swing trading may be the better option. Fast reflexes don't matter in swing trading as trades can be taken after the market closes and prices have stopped moving.

Day trading and swing trading both offer freedom in the sense that a trader is their boss. Traders typically work on their own. They are responsible for funding their accounts and for all losses and profits generated. One can argue that swing traders have more freedom because swing trading takes up less time than day trading.