Active traders often group themselves into two camps: the day traders and the swing traders. Both seek to profit from short-term stock movements (versus long-term investments), but which trading strategy is the better one? Below, we explore the pros and cons of day trading versus swing trading.

Day trading, as the name suggests, involves making dozens of trades in a single day, based on technical analysis and sophisticated charting systems. The day trader's objective is to make a living from trading stocks, commodities or currencies, by making small profits on numerous trades and capping losses on unprofitable trades. Day traders typically do not keep any positions or own any securities overnight.

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Swing trading is based on identifying swings in stocks, commodities, and currencies that take place over a period of days. A swing trade may take a few days to a few weeks to work out. Unlike a day trader, a swing trader is not likely to make such trading a full-time career.

Day Trading Pros and Cons

Pros

  • Potential to make substantial profits: The biggest lure of day trading is the potential for spectacular profits. But this is may only be a possibility for the rare individual who possesses all the traits—such as decisiveness, discipline and diligence—required to become a successful day trader.
  • Be your own boss: The day trader works alone, independent from the whims of corporate bigwigs. He can have a flexible working schedule, take time off whenever needed, and work at his own pace, unlike someone on the corporate treadmill.
  • Never a dull moment: Long-time day traders love the thrill of pitting their wits against the market and other professionals day in and day out. The adrenaline rush from rapid-fire trading is something that not many traders will admit to, but is a big factor in their decision to make a living from trading, compared with spending their days selling widgets or poring over numbers in an office cubicle.
  • Expensive education not required: For many jobs in finance, having the right degree from the right university is a prerequisite just for an interview. Day trading, in contrast, does not require an expensive education from an Ivy League school. While there are no formal educational requirements for becoming a day trader (see Best Undergraduate Degrees for Day Traders), courses in technical analysis and computerized trading may be very helpful.
  • Self-employment benefits: As a self-employed individual, a day trader can write off certain expenses for tax purposes, which cannot be claimed by an employed individual.

Cons

  • Risk of substantial losses: In an investor publication titled "Day Trading: Your Dollars at Risk," the U.S. Securities and Exchange Commission points out that "days traders typically suffer financial losses in their first months of trading, and many never graduate to profit-making status." While the SEC cautions that day traders should only risk money they can afford to lose, the reality is that many day traders incur huge losses on borrowed monies, either through margined trades or capital borrowed from family or other sources. These losses may not only curtail their day trading career, but also put them in substantial debt.
  • Significant start-up and ongoing costs: Day traders have to compete with high-frequency traders, hedge funds, and other market professionals who spend millions to gain trading advantages. In this environment, a day trader has little choice but to spend heavily on a trading platform, charting software, state-of-the-art computers, and the like. Ongoing expenses include costs for obtaining live price quotes and commission expenses that can add up because of the volume of trades.
  • Be your own boss: To really make a go at it, a trader must quit his day job and give up his steady monthly paycheck. From then on, the day trader must depend entirely on his own skill and efforts to generate enough profit to pay the bills and enjoy a decent lifestyle.
  • High stress and risk of burnout: Day trading is stressful because of the need to watch multiple screens to spot trading opportunities, and then act quickly to exploit them. This has to be done day after day, and the requirement for such a high degree of focus and concentration can often lead to burnout.

Swing Trading Pros and Cons

Pros

  • Does not have to be your full-time job: Anyone with the knowledge and investment capital can try swing trading. Because of the longer timeframe (from days to weeks as opposed to minutes and hours), trades do not have to be constantly monitored. A swing trader can even maintain a separate full-time job (as long as he or she is not checking trading screens all the time at work).
  • Potential for significant profits: Trades generally need time to work out, and keeping a trade open for a few days or weeks may result in higher profits than trading in and out of the same security multiple times a day.
  • Constant monitoring not required: The swing trader can set stop losses in place. While there is a risk of a stop being executed at an unfavorable price, it beats the constant monitoring of all open positions that is a feature of day trading.
  • Less stress and risk of burnout: Since swing trading is seldom a full-time job, there is much less chance of burnout through stress. Swing traders usually have a regular job or other source of income from which they can offset or mitigate trading losses.
  • Expensive investment not required: Swing trading can be done with just one computer and conventional trading tools. It does not require the state-of-the-art technology of day trading.

Cons

  • Higher margin requirements: Since swing trading usually involves positions held at least overnight, margin requirements are higher. Maximum leverage is usually two times one's capital. Compare this with day trading where margins are four times one's capital.
  • Risk of substantial losses: As with any style of trading, swing trading can also result in substantial losses. Because swing traders hold their positions for longer than day traders, they also run the risk of larger losses.

Day Trading or Swing Trading?

Day trading and swing trading each have advantages and drawbacks. Neither strategy is better than the other, and traders should choose the approach that works best for their skills, preferences, and lifestyle. Day trading is better suited for individuals who are passionate about trading full-time, and possess the three Ds—decisiveness, discipline, and diligence (prerequisites for successful day trading). Day trading success also requires an advanced understanding of technical trading and charting. Since day trading is intense and stressful, traders should be able to stay calm and control their emotions under fire. Day trading involves risk—traders should be prepared to sometimes walk away with 100 percent losses.

Swing trading, on the other hand, does not require such a formidable set of traits. Since swing trading can be undertaken by anyone with some investment capital and does not requires full-time attention, it is a viable option for traders who want to keep their full-time jobs, but also dabble in the markets. Swing traders should also be able to apply a combination of fundamental and technical analysis, rather than technical analysis alone.

The Bottom Line

Day trading and swing trading should both be left to experienced traders who can accept the risks of trading. Day trading is a full-time job that requires complete concentration and intense focus. Swing trading is far less demanding. It’s the appropriate choice for those who want to try their hand at trading without becoming totally immersed in it.

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