Swing Trading vs. Day Trading: What is the Difference?

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  • 08 Oct 2023
Swing Trading vs. Day Trading: What is the Difference?

By looking at an example, let's understand how intraday vs. positional trading works.

Day Trading Meaning

Day trading, or intraday trading, is a strategy in which traders buy and sell financial assets all within the same trading day. They don't hold onto these assets for a long time; instead, they aim to make a profit from short-term price fluctuations. The profit they make is the difference between the price they bought the asset for and the price they sold it for.

Assume on September 10, 2023, at the opening of the market, you buy 200 shares at Rs. 20 each. Just one hour later, the share price went up, and you chose to sell them at Rs. 23 per share. This quick move allowed you to earn a profit of Rs. 600 on that very day.

After another two hours, you bought 100 shares at Rs. 15 per share. Unfortunately, this time, the share price began to decline, and you expected it would continue dropping the next day. Consequently, you decided to sell those shares at Rs. 13 per share, resulting in a loss of Rs. 200, all within the same trading day.

Swing Trading Meaning

Traders who engage in swing trading hold securities for more than a day and exit their positions after several days or weeks. Fundamental analysis and technical analysis can both be used to evaluate different shares.

For example, you decide to purchase a stock when you notice a bullish signal, and this signal appears above the recent high of Rs. 550. To manage your risk, you set a stop-loss order at the recent low of Rs. 535. Over two weeks, you observe the stock's value steadily rising, presenting an opportunity to gain Rs. 45 per share. To further validate your decision, you conduct a thorough assessment of the stock's fundamentals. Based on your analysis, you choose to sell the stock, securing a profit of Rs. 45 per share.

In this section, we will examine the difference between day trading vs. swing trading in detail:

Basis Swing Trading Day Trading
Meaning
A swing trade is a method of trading in which gains are sought over several days to several weeks.
Intraday trading refers to buying and selling stocks within the same day.
Leverage
Swing trading leverage is two times the initial capital since positions are held for several days.
In the day trading industry, leverage is typically four times the initial investment.
Risk involved
Swing Trading involves higher risk since it involves overnight holding, which means your position will no longer be successful if circumstances change.
On any given trade, Day Traders are not allowed to risk more than 1% of their account value.
Role
Part-time Swing trading can be done as a side hustle. Unlike day traders, swing traders are active only for a few hours each day.
Trading intraday can be a full-time job. There is a great deal of time and commitment involved in day trading.
Security holding period
A security can be held for a day or several weeks in Swing Trading.
In Day Trading, security holding periods are shorter than a day.
Tools used
Charting systems and pattern analysis are used to make numerous trades in swing trading.
The use of technical analysis and charting technologies is used to execute multiple trades in a single day in Day Trading.
Time required
In swing trading, less time is spent on the market.
A day trader invests more time in the market
Execution of trade
The swing trade requires more time to mature, and traders use this time to track market movement.
Traders must execute trades quickly because a single loss could wipe out a whole day's earnings.
Capital Requirements
There are more capital requirements for Swing Trading than for day trading, which makes it more difficult for most traders to access.
A day trader requires less capital than a swing trader, making it more accessible for most traders.

There are advantages and disadvantages to each trading style. The following factors should be considered before choosing a style of trading: Day Trading vs. Swing Trading.

  • Time Frame

With swing trading, your trades are spread over a longer time frame, requiring less continuous involvement. In contrast, day trading demands constant monitoring of the market, and quick decision-making is crucial.

  • Profit

Swing traders aim for substantial profits in fewer trades, while day traders focus on making multiple trades within a single day to optimize daily profit.

  • Risk

Swing traders assume more risk by leaving their positions open overnight, which can expose them to market changes. On the other hand, day traders close their positions by the end of the trading day, avoiding the risk of overnight market movements.

  • Maturity Of Trade

Swing trading allows trades to mature over a longer period, giving traders time to analyse and follow market movements, thereby reducing risk. Day traders must act swiftly because one loss can erase the day's entire profit.

  • Capital Requirement

Day trading typically requires less capital compared to swing trading, making it more accessible to a broader range of traders.

In general, the choice between day trading vs. swing trading depends on your risk tolerance, available time, and trading objectives.

Conclusion

Choosing between day trading vs. swing trading depends on your trading style. If you're ready to dedicate your time and attention to the market, you can choose to become a day trader. However, if you find that you can't fully concentrate on trading, swing trading might be a suitable option. You can check Kotak Securities' website for more updates on the stock market.

FAQs on Day Trading vs. Swing Trading

Day trading is based on smaller price movements, so the risk is lower than swing trading. Day traders who make multiple trades in one day have a high chance of making numerous small gains and losses.

Day traders and swing traders differ primarily in their patterns. The aim of swing traders is to earn a higher profit by holding their positions according to the market movement. While day traders make their trading decisions based on technical and quantitative analyses, they also identify stocks that grow or decline.

It is safer to swing trade than day trade because swing traders make fewer trades.

Intraday Trading in India is referred to as the most profitable, but depending upon your trading goals, returns can vary.

Swing trading is a good way for beginners to get started since it involves holding investments for more than a few days and less than a couple of months. It takes less time and is less stressful than day trading.

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