Uh oh, there’s a fork in the road, which path do you take? Day trading, or swing trading? 

The decision on whether to adopt a day trading strategy or swing trading strategy can seem a little unclear at first. We’ll help you make a decision by telling you what’s along the way, and what’s at the end of each path so you don’t have to guess which way to go. 

Day trading and swing trading are similar strategies but differ in ways that could better cater to a person’s needs and lifestyles one more than the other. 

Let’s first define what day trading and swing trading are, the forms of analysis involved with the two strategies, then we’ll look at the pros and cons of each so you know which one is best for you and your goals. 

Swing Trading and Day Trading: The Basics

Day trading is a strategy performed intraday, so the trades you place will be closed the same day they were opened. A day trader typically places multiple trades throughout the day to maximize their profits. Their profits are accrued by stacking small gains throughout the day. In a general sense, day trading is much more intense than swing trading, as the amount of time between trades, and the frequency they’re placed at, is much higher.

An image illustrates day trading and swing trading, where we can see differences between day trading and swing trading.

On the image above you can see the differences between day trading and swing trading.

Swing trading takes place across several days, sometimes even several months. Swing traders profit off of the swings in a stock’s price. The name of the game with swing trading is to also consistently stack gains, but with swing trading you place trades less often than day trading, and you typically have higher profits per trade (if all goes to plan) because the positions are held longer—which gives them more time to grow.

In addition to understanding the basics of the two strategies, it’s important to be familiar with the different forms of analysis involved with them. 

Behind the Scenes of Successful Trades: Research and Analysis

We want to give you a good idea of the factors involved with swing trading and day trading so that you have a better idea of the time and energy you need to commit to either strategy. In this way you can see which strategy better fits your trading preferences and lifestyle. 

Behind the scenes of every well thought out, profitable trade, is research and analysis that statistically backs up a decision to buy or sell. The less research and analysis you conduct, the closer your trades come to just being gambles and guesses. You can give yourself an edge by using two common forms of analysis. Fundamental and technical analysis apply to both strategies discussed here, but they are used in different ways. The main reasons being the frequency of trades, and the length they’re held. 

Because day trading is focused more on high frequency, short-term trades, day traders debate whether fundamental analysis is useful for the strategy or not. The way we see it, if you enter and exit a position within the same hour, the figures on a company’s balance sheet are not really going to influence the price of the underlying security within that time frame. It is important to note, however, that a company’s earnings report will typically increase the volatility of the underlying security, so at least be sure to check earnings report dates before placing a trade. 

With swing trading, applying fundamental analysis makes more sense because the trades are held on to for much longer. Notably, fundamental analysis includes more than just the company’s financials. It also has to do with the company’s business model and it’s competitive advantage. If you want to be a good swing trader, these factors should be analyzed and compared/contrasted to other similar companies. If a company has a wide economic moat, for example, that’s a strong indicator for the company to have a long-term advantage, thus, you may feel more bullish towards the security. 

Technical analysis is different, as it pairs nicely with both day trading and swing trading. Chart patterns can be read on both long-term and short-term scales. TTA uses technical analysis as it applies to swing trading. Support and resistance lines are something we like to use because there is typically a significant price movement after a securities price breaks through the support or resistance line (depending on trading volume – another important indicator we use). And if you’d like, we can send you real-time text options alerts when this happens so you don’t have to monitor the market constantly.

An image illustrates the stock chart of AAPL, where we can see resistance line and support line.

Support and resistance level on a 5-month chart of AAPL. Image by TradingView.

The above two images demonstrate a basic technical indicator, support and resistance lines, being free time scales. 

There are still differences in how technical analysis is applied to the two strategies. For instance: chart patterns can be applied to both day trading and swing trading, but technical indicators like historical pricing and volume are generally more useful for swing trading than day trading. This again has to do with the length of time held onto a position. Historical pricing isn’t going to be a major factor in a position that is bought and sold in less than an hour. 

Psychological Burdens: Day Trading Can Be Taxing

You know that feeling you get when you’re doing something mentally taxing, and after a while it feels like your brain just can’t hold any more information? This is a common symptom of day trading.

Granted, there are many benefits to day trading such as the large profits you can realize over time with consistent practice. But when you start comparing day trading to swing trading, it becomes obvious which one is a little more of a handful. 

Every second counts with day trading, and every time you add a new position to monitor, you’re adding another ball to juggle. During market hours, it is crucial for day traders to be monitoring the market and their position at all times because price movements can be short lived. You need to be ready to capitalize on a quick upward bounce, as well as take out a position that’s headed south. 

Watching a position, or even multiple positions while you’re day trading is like babysitting toddlers. You can’t look away for a second, and when you do, of course something bad happens… Plus, if you already have a full-time job, how can you expect to be focused on that and watching your trades during work hours? 

Because day trading requires a lot of time and energy, this is a strategy for those who generally have more free time, and are willing to dedicate a lot more energy towards trading. It is also for those who like the face-paced, intense style of this strategy, as swing trading requires a little more patience. 

Swing trading is more like babysitting a 10 year old. They’re more responsible than a toddler, but you still need to keep your eye on them. Essentially, you have more breathing room with this strategy than you do with day trading because when you execute a buy order, you hold it, and let it mature over time. But remember, you still need to be diligent in monitoring your positions. 

The longer you don’t watch them, the more risk you are assuming, as the price has more time to move, and can move in an unfavorable direction. To help alleviate any stress and also save you some time, you want to make sure you have stop-loss orders placed, and a tool like TTA to have your back when you don’t have the time to watch your positions. We have our eyes on the market constantly, alleviating our members of the burden and stress that come with trading. 

A Crucial Consideration: Capital Requirements 

It might be a fun idea to place some day trades here and there, but be warned… If you have less than $25,000 in the brokerage account you’re using to trade, and place more than 4 day trades within 5 business days, you’ll be marked as a pattern day trader and therefore subject to negative consequences

FINRA says that in order to day trade again, you need to meet the minimum equity level of $25k. Some brokerages such as Robinhood will restrict you from purchasing securities for 90 days if you have less than $25k equity and have been marked as a pattern day trader. 

This lends another advantage to employ the strategy of swing trading. Since, by definition, swing trading almost always holds onto a stock for at least a day, you don’t have to worry about the restrictions of day trading.

Wrapping Things Up: Which Strategy is Better For You? 

We’ve discussed here the essence of day trading and swing trading, as well as the amount of time and research involved with the two strategies. Both strategies have the potential to be very lucrative, and there isn’t one that’s definitely better than the other, it really just depends on your lifestyle, time commitments, and the level of involvement you want to have in the market. 

Day trading is a fast paced, high energy strategy that requires a lot of time commitments, but can lend large rewards if you are diligent and disciplined. This strategy requires you to always be aware of market conditions, and especially the movement of the trades you place. Day trading is a strategy for those who want to be deeply involved with the market, and see trading as more of a full-time job. 

With swing trading, you have more breathing room because you don’t place nearly as many trades throughout the day, and your positions are held onto for longer. This is a great strategy for those who have a full-time job during the week. So if you do have a full-time job and want to get your hands dirty trading, TTA could serve as a tool to help fill in the blanks when you need to focus your energy on something else. 

Now that you are familiar with the types of trading and research involved, do you have a better idea of what path to take, what strategy to choose? Here’s a thought experiment that might help you decide:

Think about the amount of energy you spend throughout the day as a bowl of marbles. Each marble represents an amount of energy you’re willing to allocate to something. You have various aspects of your life you choose to commit to such as work, relationships, recreational activities, and the like. If you’re incredibly busy with work, you need to allocate more marbles to the work bowl. If you want to spend more time with your partner, you need to balance the amount of marbles you allocate to other commitments so you have enough marbles to dedicate to the partner bowl. 

The big question: How many marbles are you willing to allocate towards trading? 

Day trading generally requires more marbles, and swing trading, in general, especially in combination with TTA, requires far less. This doesn’t mean one is better than the other. They’re just different.

Again, it ultimately depends on you; and that’s a great part about choosing and employing a trading strategy, you can find one that caters to you and your lifestyle.

Swing Trading vs. Day Trading: FAQs

Is Day Trading More Profitable than Swing Trading?

Whether or not day trading is more profitable than swing trading is a heavily debated topic. Some traders will swear that day trading is more profitable, while swing traders will argue the opposite. The truth is, both swing trading and day trading can be profitable; the success of each strategy ultimately depends upon the execution of the trades you place. Here’s what we mean:

When you day trade, you’re looking to stack small profits to slowly build your overall percent gain throughout the day. In the life of a full-time day trader, trades are flying in and out, they’re scraping off small profits, and, obviously, hopefully winning more than they’re losing. You need to be on your toes when you’re day trading, as it requires constant attention dedicated to monitoring the markets.

With swing trading, you’re looking to have much larger gains, but place fewer trades. It’s a more targeted approach compared to day trading. Large gains are achieved by holding on to the positions for longer, at the very least overnight – and can be held anywhere from a few days to several weeks, sometimes even longer. This allows for the positions to mature, and hopefully move more in the money over time. 

Bottom line: Many small gains with day trading can equal one or two medium to large gains with swing trading. It all depends on how well your trades are executed. Determining which strategy is more profitable comes down to the success of your trades, not necessarily the strategy. So make sure you choose a strategy that fits your lifestyle so you have a better chance of placing effective trades. 

Is Swing Trading Safer than Day Trading?

Here’s the short answer: swing trading is not inherently safer than day trading. Whether or not one is safer than the other depends on a couple of factors. 

From a purely statistical point of view, when you diversify more, you assume less risk. Think about building a portfolio of stocks. If you only have one or two stocks in the portfolio, it’s going to feature increased risk when compared a portfolio with five to ten stocks. This is because you hedge risk with more positions open (i.e., if one stock takes a heavy loss, you hedge your risk by having other positions open to hopefully help cushion the blow).

In this sense, and from a statistical point of view, day trading could be seen as less risky than swing trading. But remember, you really need to be on top of your game when you day trade. So it also depends on how much time and concentration you can allot to day trading. Success in day trading begs for non-stop market monitoring, and quick moves when entering and exiting positions. The less time and energy you have, the riskier day trading becomes, and swing trading might be a safer alternative. 

Can You Live Off Swing Trading?

It’s entirely possible for you to be able to live off of swing trading – but it whether or not you can is contingent upon a few key factors: 

  1. Portfolio size: If you open an account and fund it with $1,000, and invest 5% of your total capital into each trade, and make 10 – 12% gains on average from your profitable swing trades, you are only making $5 – 6 per trade. And let’s say you place 2 trades per day, and hypothetically you are only placing profitable trades. That only comes out to $10 – 12 profit per day. But if you start with $25,000 (keeping our hypothetical variables constant), you would make $125 – 150 per day.
  2. Position size: You can think of this as the amount of capital you’re willing to allocate to each trade, and therefore, the amount of risk you are willing to assume. The more capital you allot to each trade, the more risk you will take on. Some traders want to have a more moderate approach, as they might have existing financial responsibilities. Or maybe they have the capital and a secure income stream, so they might be willing to take on a more aggressive strategy. Remember, the more risk you assume, the larger your gain or loss will be. Find a risk level you’re comfortable with.
  3. Cash flow management: What’s the ratio of your income to your expenses? Does your income primarily derive from employment, or assets? There are significant lifestyle implications here, which generally result in a varied answer. It can also simply depend on where you are in life. Some people are students and need to pay tuition, some have children they need to take care of, some have a partner that’s a stay at home parent, some are single and live in a basic studio apartment. So while some may be able to live off of $25 a day, others may need more per day due to a number of different variables.

How Are Swing Traders Taxed?

Swing traders can be taxed in two different ways. It is dependent on whether you qualify as a full-time trader or not. If you qualify as a full-time trader, you will be taxed as a business. If you don’t, you’re taxed the same as every other investor. 

What is a full-time trader? Full-time traders earn a living solely from trading; so instead of spending eight hours a day at another job, you are spending eight hours a day in front of a computer screen trading. This lifestyle is more common when you are day trading, as swing traders don’t always place trades everyday, so it can be difficult for swing traders to qualify for the tax privileges full-time investors receive. You can always check with a tax advisor to see if you can qualify for full-time benefits.

Taxes for full-time investors (via the IRS): As stated above, you will be taxed as a business rather than an investor. This means that you can deduct costs that are associated with trading including software and hardware, expenses related to setting up your home office, etcetera. 

Additionally, while investors have to pay capital gains tax, as a full-time investor, under the Mark-to-Market accounting rule, you can deduct losses against other sources of  income. 

Taxes for part-time investors: As a causal, or part-time investor, you are taxed the same as every other investor. This means that you need to pay capital gains tax. Capital gains tax is a tax on the profits made from your investments. 

Further, there are short-term and long-term capital gains. A short-term capital gain is incurred when you sell an asset that was held less than one year, and long-term capital gains are incurred when you sell an asset that was held for more than one year. 

Tax Rates for Short-Term Capital Gains 2021

Filing Status 10% 12% 22% 24% 32% 35% 37%
Single Up to $9,950 $9,951 to $40,525 $40,526 to $86,375 $86,376 to $164,925 $164,926 to $209,425 $209,426 to $523,600 Over 523,600
Head of household Up to $14,200 $14,201 to $54,200 $54,201 to $86,350 $86,351 to $164,900 $164,901 to $209,400 $209,401 to $523, 600 Over 523,600
Married filing jointly Up to $19,900 $19,901 to $81,050 $81,051 to $172,750 $172,751 to $329,850 $329,851 to $418,850 $418,851 to $628,300 Over 628,300
Married filing separately Up to $9,950 $9,951 to $40,525 $40,526 to $86,375 $86,376 to $164,925 $164,926 to $209,425 $209,426 to $314,150 Over $314,150

Source: IRS

Long-Term Capital Gains 2021

Filing Status 0% rate 15% rate 20% rate
Single Up to $40,400 $40,401 to $445,850 Over $445,850
Head of household Up to 54,100 $54,101 to $473,750 Over $473,750
Married filing jointly Up to $80,800 $80,801 to $501,600 Over $501,600
Married filing separately Up to $40,400 $40,401 to $250,800 Over $250,800

Sources: IRS, IRS

What Happens if You Place 4 Day Trades in a Day?

When you place four or more trades in a day, you are considered a “pattern day trader”. 

A day trade is defined as buying and selling (or selling and buying) the same security within the same day in a margin account. You are recognized as a pattern day trader when you buy and sell the same security four or more times within five business days.

If you are flagged as a pattern day trader, you will be subject to the repercussions described by FINRA and the brokerage you are using. So be sure to read the fine print with your brokerage to avoid any potential issues. Normally, there are no repercussions if your account has at least $25,000 worth of equity.

What Happens if You Break the Pattern Day Trader Rule?

According to FINRA, if you break the pattern day trading rule as explained above, your account will be flagged and, “…the pattern day trader will not be permitted to day trade until the account is restored to the $25,000 minimum equity level.” 

Next, you may be issued a margin call from your brokerage. If you are issued a margin call, you will need to meet the call by restoring funds to your account to reach the minimum equity level required in order to day trade again. If you are issued a margin call and do not pay it within 5 business days, your account will be restricted to trading only with available cash for 90 days or until you’ve restored your balance to the required level. 

Note: It is imperative that you review the potential ramifications of breaking the pattern day trade rule with the brokerage you use. Some brokerages are more leintent than others, and may let you off with a warning, while others strictly enforce the rule, and may suspend you from trading entirely during the 90-day period or until the account is restored to a minimum equity of $25,000. 

How Much Money Do Day Traders with $10,000 Accounts Make per Day on Average?

Day traders with $10,000 accounts have the potential to make hundreds of dollars per day. Of course this is contingent on how effective your trades are. And while this is a difficult question to answer because of the limited available data, we can share some examples to help show the amount of profit people can earn based on different factors: 

Let’s say you invest 5% of your total capital per trade ($500), and you place three trades per day, totalling $1,500 invested per day. Based on those factors, here is how much profit you would make based on different percentages gains.

Investing 5% of your capital per trade:

  1. If you net a 8% gain at the end of the day, you will make $120
  2. At 10%: $150
  3. At 12%: $180

Investing 10% of your capital per trade:

  1. At 8%: $240 
  2. At 10%: $300
  3. At 12%: $360

Keep in mind that day traders need at least $25,000 to be able to trade like this, so a swing trading strategy might be more suitable for a trader with a $10,000 balance until you can meet the minimum equity requirement. Moreover, even professional traders only aim to increase their portfolio by about 1% per day (and they have bad days too), so trying to make a hefty profit day trading like this will come with a lot of risk.