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.

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 alerts when this happens so you don’t have to monitor the market constantly. 

Stock chart of AAPL

Caption: 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 everytime 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 inredibly 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.