Have you ever asked yourself: “Should I day trade or should I swing trade? Which is more profitable?”
In this article, you will discover the main differences between swing trading vs day trading, and you will find out what’s best for you.
Is Swing Trading Better Than Day Trading?
Well, let’s define it first:
When you are swing trading, you’re holding your position for a few days.
Personally, I like to hold a position between 5 and 20 days.
And when you’re day trading, you’re opening and closing a trade within 1 trading day.
As an example: When I’m day trading, I’m usually in a position between 5 and 20 minutes.
You can already see the main difference:
- Swing trading: I’m holding a position 5 to 20 days,
- Day trading: I’m holding a position 5 to 20 minutes.
What Is The Difference Between a Swing Trader And a Day Trader?
There are two main factors that determine what’s better for you: day trading or swing trading.
Let’s talk about the first factor: Time.
When day trading, you need to sit in front of the computer.
As an example, when I day trade, I sit in front of the computer for 1 hour.
And here’s an important thing you need to know if you want to succeed with day trading:
TWO conditions have to be met:
- You need to be ready and
- The markets need to be ready.!
What does that mean?
Let me give you an example:
Some people say, “I am working throughout the day, and I’m busy. But I can day trade at night!”
And then they ask, “Alright, so what is the best market to day trade from 8 to 9 pm?”
Here’s the answer: NONE!
The markets are not moving during this time, and they are very illiquid. Super difficult to trade!
Most markets have nice moves shortly after the open and then again going into the close.
For stocks, this means between 9:30am – 10:30am ET (New York Time), which is shortly after the open, and then again between 3pm – 4pm ET – which would be right into the close.
As you can see, depending on your schedule it might not be possible for you to day trade.
And that’s the main difference to swing trading.
Because when you’re swing trading, you can do it any time – especially when the markets are closed.
All you need is 15 minutes per day.
I personally like to look at charts at night when the markets are closed to make my swing trading decisions for the next day.
By the way, if you’re interested in how exactly I’m trading, go to MyTradingRoutine.com. On that website, there’s a video in which I reveal how I find the best stocks to trade, when I enter these stocks, where I place my stop loss and when I take profits.
- If you have time throughout the day, day trading might be for you.
- If you do not have time throughout the day, swing trading might be better for you.
Which Is More Profitable: Day Trading Or Swing Trading?
Let’s talk about PROFITS.
After all, this article is titled “What is more profitable: swing trading vs day trading?”
Before we can talk about profits, we need to talk about risk. Because when trading, you have to risk money to make money. That’s how the game works.
Here’s a rule of thumb:
The smaller the timeframe, the smaller your risk.
Let me give you an example:
Let’s say you’re trading a stock, and the stock moves $2 per day.
When you are swing trading, you need to place a stop loss of at least $2, otherwise, you might get stopped out throughout the day while the stock is moving.
And when swing trading, you want to be in a position between 5 and 20 days. So you need to give the trade enough room to move. Therefore, you need a stop loss of at least $2.
When day trading, you can use a much smaller stop loss.
I personally like to use a stop loss that’s 10% of the Average Daily Range (ADR). So in this example, if a stock moves $2 per day, you can choose a stop loss of only $0.20.
As you can see, the stop loss is much smaller.
Therefore, even though most people think that day trading is riskier, it is actually less risky – because you risk less.
But here’s the disadvantage:
A smaller stop loss means that you also have a smaller profit target.
The Golden Rule for me is this: For every dollar I risk, I want to make at least $2.
So in our example:
When swing trading, you’re risking $2, and you’re trying to make at least $4.
On the other hand, when day trading, you only risk $0.20. So you’re trying to make $0.40 cents.
And what would you rather earn: $4 or $0.40 cents? – $4, right?
Now here’s the important thing:
When day trading, you have more trading opportunities!
- When you’re swing trading, you might only have one opportunity per day.
- When day trading, you might have 4, 5 … maybe 10 opportunities per day.
So even though you generate smaller profits, you make more of these smaller profits. And this can lead to larger gains.
Here’s what I personally do:
I personally swing trade stocks and options, and I day trade futures because of the leverage.
When trading futures, you have enormous leverage.
For example, when trading Crude Oil, you have a leverage of 1:1000!
So when Crude Oil moves $1, and you’re trading one contract of Crude Oil futures, you’re making or losing $1,000!
Think about it this way:
- Swing trading is like driving a car at regular speed.
- Day trading is driving a car on the German Autobahn with 160 miles an hour.
When you’re swing trading, you can take your time to analyze the market.
When day trading, you only have a split second to make a trading decision.
So you have to be absolutely focused, and this is why I only trade for 1 hour a day. Because after one hour I lose focus, and when it comes to day trading this can be dangerous.
Which One Is better: Swing Trading or Day Trading?
As you know by now, it depends on your situation:
- If you do have time throughout the day to watch the markets and you know what you are doing, day trading can be very profitable.
- If you are new to trading, I recommend that you start with swing trading. And after a while, you can add day trading to the mix,
Now you know the difference between day trading and swing trading.
And you have some guidelines to decide what’s best for you.
Trading Futures, options on futures and retail off-exchange foreign currency transactions involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment. The lower the day trade margin, the higher the leverage and riskier the trade. Leverage can work for you as well as against you; it magnifies gains as well as losses. Past performance is not necessarily indicative of future results.