Is Swing Trading Better Than Day Trading - More Profitable, Easier, Safer?

Which trading system is best for you: Swing trading or Day trading? Let's find out.

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What’s the difference between swing trading and day trading?

Day trading focuses on trading price movement within one day, a few days at most.

Traders look at lower time frames and try to extract profits from small price movements. Strategies are often similar; the difference is mainly in the percentage of captured moves and the duration of holding positions.

Swing trading, also sometimes called Position trading, is the opposite.

Traders focus on larger time frames, try to capture the more obvious, more significant moves, and observe larger time frames.

Is Swing trading more profitable than Day trading?

There is no easy answer to this question. Profitability will always depend on the individual trader and their expertise.

• If you’re a great Day trader, you can make good money trading small time frames, sometimes making dozens of trades within one day. 

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• And if you’re a good Swing trader, you can make good money trading those larger moves, even though you’ll probably only open a few trades in one month or even a year. 

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There are some important differences, though.

• In Day trading, there will be more trading opportunities that, if successful, can compound small profits into a good trading month or year.

• Swing trading, on the other hand, enables you to compound size within one large trade, making any successful long trade a possible big winner. One good trade can make you a yearly salary or elevate your financial status to a new level, which is impossible with day trading. 

• In Day trading, you compound hundreds of small profits; in Swing trading, you compound a few positions into one significant position. Both are, of course, only possible if you are profitable in your trading. 

• Day trading will overperform Swing trading in indecisive, ranging markets, while Swing trading will triumph over Day trading in strong, trending markets. 

Risk vs reward - which is safer?

Day traders

Day trading allows for tighter stop losses, focusing on smaller price movements. 

That allows traders to open significant positions, often using leverage, as they can precisely determine their exits. The price they pay is with smaller profits unless they use exceedingly large sizes. 

Day traders will have opened dozens, perhaps even hundreds of trades in any prominent price trend, while a Swing trader may just ride the trend in one long trade.

At first glance, Day trading might involve lower risk because traders can use tight stop losses and risk less money per any one trade individually.  However, because traders focus on tight price movements, they need to size up, often using leverage, and open up more trades, exposing them to all kinds of risk.

• Smaller price movements mean you need to use more significant positions.

• More trades expose you to more risky and unpredictable situations on the market.

• Your risk-to-reward ratio will likely be lower than with swing trading, especially compared to trend traders.

• Day traders make money milking the market daily, taking small profits often.

Swing traders

• Swing traders only make a select few trades every month or year, they need to use larger sizes by default. 

• Since they can’t use tight stop loss principles, for they must allow more breathing room for the price, they are forced to risk more on any individual trade. 

• They must jump in and put their balls on the table when they see an opportunity. Who knows when the next opportunity will present itself? It could be months!

Swing traders make money waiting for the perfect opportunity, jumping in with size, and then riding the move as far as possible. Their opportunities come along rarely, so they have to make sure not to screw up their timing, entry, and exit.

What are the biggest dangers of each style?

For Day traders, the biggest dangers are:

• Overtrading. Sometimes, there might not be any good trades, and Day traders can’t sit on their hands, so they are prone to overtrading. They need to trade constantly; otherwise, they feel useless and often force trades on the market. 

• Fees. Since Day traders enter and exit positions multiple times a day or week and take advantage of smaller price movements, the fees can significantly affect their profitability.

• Death by a thousand cuts. Day trader may cut their losses early and use tighter risk management, but those can add up quickly. Turning Day trades into Swing trades. It sounds like a great idea, doesn’t it? In ideal situations, it could be, but more often than not, we just give our profits back and take a loss when we should have taken our predetermined profits. 

• Not getting out when they should have. With 0.5 to 1% per trade, it takes a while before any real damage is done. If you risk more, a few bad days can wipe out half your account.

• Leverage. When using leverage, things get more complicated, and there’s a lot less room for mistakes.

• Forgetting that there is more to life than just trading and spending too much time in front of their screens, which can amount to stress and other psychological difficulties.

Swing traders, on the other hand, are more open to the following dangers:

• Poor risk management. Since opportunities are rare in Swing trading, we want to take full advantage of them. And since in Swing trading, a trader has to allow the price ample breathing room to move but still wants to size up, that can end up a disaster. 

• No risk management. Fresh Swing traders often don’t even bother to manage risk. A few wins will blind any trader to the possibility that the next trade might be a loser. And without risk management, that loss can be severe!

• Inability to take a loss. Since Swing traders are not used to making quick decisions in the market, they can get caught off guard when unexpected things happen. They’re not used to taking losses, and by the time they realize that their trade looks terrible, the loss has grown into a monster loss, making it almost impossible to cut the trade, as it means accepting a significant loss.

• Overconfidence. This ties to the point above. In Swing trading, win rates are often higher, which can lead to traders becoming complacent. If you haven’t lost a trade in months, you might start to believe yourself to be a Trading God. No worries, you’ll be humbled by the market eventually, as we all were.

• Taking profits too soon. In Swing or Position trading, we must hold our winner longer and ride the price movement further to make good profits. Opportunities are rare, so we have to take full advantage of them. 

• Going all-in or trading too large positions. Again, this is a problem of rare opportunities. If we only get one shot per week or month, for example, we want to open as significant of a position as possible. 

• Poor risk-to-reward trades. Since the win rate is higher in Swing trading, partly because of wide stop loss positioning (lax risk management), we have a better win rate. Markets are also more predictable in those large time frames, especially after making significant moves in price. Awesome in trending markets.
  The flip side of this equation is that we could end up with a low risk-to-reward ratio in ranging markets and when counter-trend trading. While this enables us a high win rate, it also forces us to maintain this high win rate, or we suffer losses and lose all profits. Sometimes, the market doesn’t cooperate, which can lead to unprofitable months, even years, as our winners don’t manage to cover our losers.

What are the psychological differences between Day traders and Swing traders?

This is where things get interesting. Trading is a very individually specific business. No two traders are exactly alike; what works for some may not work for others. There is no one simple answer to the best approach or trading strategy, as we - the traders are so very different.

It is, therefore, essential to know yourself as a trader. 

All traders go through this process of self-evaluation and testing. We try different strategies and play around with trading different styles and time frames until we find the one that we are most proficient and comfortable with. 

I started as a Position trader, which suited me for a while. A mixture of a prolonged bear market, zero good opportunities, and a small trading account pushed me toward Day trading. I’ve been playing with it for a couple of years, but I can’t say that I enjoy it or thrive at it. 

I am not a risk taker by nature, nor is there a gambling gene in my whole genome. I am highly risk-averse and struggle with taking on many losses without losing my conviction and composure. The simple truth is that day trading probably isn’t the right strategy for me. But it might be for you.

You should try Day trading if:

• You’re not very patient.

• You need action all the time.

• You enjoy taking risk after risk.

• You feel you must manage your money very tightly.

• You enjoy spending time in front of the screens all day long.

• You don’t know how to sit on your hands and do nothing.

• If you’re new to trading, as it will offer you much more trading experiences in a shorter time frame, which is excellent for learning.

You should focus on Swing trading if:

• You are patient, like a hidden sniper, and can wait for days, weeks, or even months for that perfect opportunity.

• You can handle larger swings in your trading account or portfolio.

• You can withstand the inner pressures and resist opening trades too often or closing them too early.

• You like to look at the big picture, think about more significant price movements and global developments, plan your trading, and are more strategically oriented.

• You have a larger portfolio or trading account because, in Swing trading, there will be fewer opportunities to make money compared to day trading, so you must make them count.

• You know how to keep yourself busy with other projects and want to live a life free of staring at the computer screen all the time.

• You have a regular job or another business and can’t focus solely on trading all day long.

So, what is the right answer for you?

Only you can answer that question, and even you might need a few years to get the definitive answer. Experiment, journal, and notice how you feel and how you do. The answers will reveal themselves to you when the time is right. Until then, manage risk to survive all the experimentation, mistakes, and dangers in trading the markets.

Either way, you’ll learn a ton from trading both styles. 

• Swing trading will teach you to be patient, compound your trades, and look at the big picture.

• Day trading will train you in risk management and quick decision-making and give you a lot more exposure to the ups and downs of trading.

Have fun out there, but stay safe!

*New to trading? Start here and learn about managing risk!

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