The Pros and Cons of Day Trading Vs. Swing Trading

Day trading and swing trading are two ways to try to make money from short-term stock trades. While the two do share some similarities, they differ in some significant ways. If you’re trying to evaluate which method is best for you to get started, it’s important to see which of the two aligns better with your lifestyle, goals and personality.

Day Trading

Day trading uses technical analysis and charting systems to make dozens of small trades in a single day. The goal is to make small profits on lots of trades and cap losses on unprofitable trades. Usually, day traders don’t hold any positions overnight.

The Pros of Day Trading

The upside of day trading is that there is the possibility of making a lot of profit. By taking advantage of multiple deals on the market every day, it can add up to significant gains in the long run.

Perhaps even more exciting is the possibility of working for yourself. That means you don’t answer to a boss, your schedule can be as flexible as you want it to be, and you can work at your own pace. You’re effectively out of the corporate rat race and you can do things your way on your own time.

It’s also an exhilarating way to spend the work day. There’s a certain adrenaline rush you get from making lots of rapid-fire high-stakes decisions throughout your work day. As an added bonus, there are no certificates or university degrees necessary to get started in day trading. Anyone can do it!

The Cons of Day Trading

There are some downsides to day trading. For one, it can be difficult to actually make a profit. In fact, most day traders usually suffer severe financial losses in the first months of trading. Some never make any money at all. And if you’re using borrowed money for your day trading business, it’s possible to incur losses and land yourself in significant debt.

One of the aspects that makes day trading so challenging is that you’re competing with high-frequency traders, hedge funds and other professional traders who have large teams and millions of dollars at their disposal.

You’ll also have lots of expenses, including the cost of a trading platform, charting software, and a high-tech computer. Plus, you’ll have ongoing costs for live price quotes and commission expenses, which add up when you’re making lots of trades every single day.

Not only do you have to be willing to risk your money, you have to be willing to risk your livelihood. To be successful, you have to dive in head first and make day trading your full-time job, giving up the security of a steady paycheck. You’ll be entirely dependent on your own skills day in and day out to earn a livable wage. That can be tough, as it’s stressful to pay attention to multiple computer screens all at once to spot opportunities in the market and exploit them. It requires a high degree of focus and concentration that can easily lead to burnout.

Swing Trading

Unlike day traders, a swing trader will make trades based on swings in the market that happen over days or weeks. These types of traders make a profit by identifying swings in stocks, commodities and currencies over the period of a couple days.

The Pros of Swing Trading

If you want to keep your day job but are looking to invest on the side, swing trading could be for you. Because of the longer timeframe for trades, you don’t need to be connected to your computer all day long so you can keep your full-time job, which helps mitigate your risk.

Because swing traders are not entirely dependent on trading to make a living, there’s less chance of burnout. It also helps that swing trading requires just one computer and some conventional trading tools. And you won’t need to invest in state-of-the-art technology.

You can also set up stop-losses to establish a floor for your position. While you risk selling at an unfavorable price, you can at least minimize your risk and don’t have to constantly monitor your open positions.

The Cons of Swing Trading

Swing trading is decidedly slower than day trading. Trades may take a few days or weeks to be profitable. Because of this extended timeline, you won't make a quick buck. You’ll need patience to see a good return on your investment.

Swing trading is far from a sure investment and can result in substantial losses. Because swing traders hold positions for longer than day traders, they run the risk of larger losses. Keep this in mind when you’re considering which type of trading is best for you.

Is Day Trading or Swing Trading Right for You?

To successfully decide whether day trading or swing trading is right for you, it’s best to consider which one fits your personality and lifestyle. On the one hand, day trading is best for someone who is passionate and ready to go all in. Plus, you’ll need some advanced knowledge of technical analysis and charting systems. And keep in mind, it’s possible you’ll walk away from a day with 100% losses. You have to be okay with that if you’re considering day trading.

Swing trading on the other hand, doesn’t require special traits or fancy technology. It’s generally a good option for people who have investment capital to play with and want to keep their day job. In other words, if you’re not ready to risk it and go all in, swing trading could be for you.

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