Day Trading vs. Swing Trading

Want to jump straight to the best? Most of our users prefer Interactive Brokers for stock trading.

Swing trading and day trading are two popular ways of trading financial instruments such as stocks, forex, bonds and futures. Benzinga is here to introduce you to both types, helping you hone in on the one that best fits your trading style.



Overview: Day Trading vs. Swing Trading

Depending on your level of commitment and the amount of time you’d like to spend monitoring your money, your time horizon could vary considerably.

Let’s take an in-depth look into the differences between two types of trading that exist on the lower end of the time horizon spectrum, from a matter of hours to just days.



Compare Day Trading vs. Swing Trading

Whether day trading or swing trading is right for you is determined by the amount of time you can dedicate to trading, your goals, and you financial needs.

Similarity 1: Profit Potential

You’ll accumulate gains and losses more slowly if you swing trade, but swing trades can also result in big gains.

Overall, day trading can make you money more quickly but you can still make (and lose) money swing and day trading.

Here’s an example of day trading positive return:

  • If you purchase 1,000 shares of a stock trading at $10, the total cost would be $10,010 ($10,000 for stock and $10 for commission).
  • If you sell the stock for $11 per share, later on in the day (day trading) your earnings are $10,990 ($11,000 plus $10 commission), and your profit is $980 ($10,990 minus $10,010).
  • If you did that all year, your annual return would be close to $250,000. Though a fictional scenario with similar results are unlikely, there is a tantalizing attraction to trading.

Similarity 2: Invite Risk

The longer you hold a position, the less control you have over your results.

For example, if you hold a position for 10 minutes or an hour (day trading), you can control your risk much better than you could if you hold your position for a lengthier period of time (swing trading).

There are also major financial risks with both, as well. Check out day trading firms with your state securities regulator, always be careful with margin accounts and be aware that unless you know what you’re doing, you could lose a lot of money.

Many experienced day traders recommend paper trading, or imaginary buys and sells with pretend money before launching into either venture for real.

Similarity 3: Full-Time Business Potential

The Securities and Exchange Commission (SEC) identified some rules and specific conditions to determine the circumstances under which active traders have a real trading business.

The rules and conditions focus on the substantial activity of trading seeking short term profits in a regular and continuous way. Special attention is given to the frequency of trades, the potential to produce substantial income to cover a lifestyle and expenses and the amount of time traders commit to trading activity.

Difference 1: Your Time Commitment Varies.

The amount of time you commit to opening and closing positions is markedly different between day trading and swing trading.

Day trading requires more time monitoring trading conditions. Swing traders can monitor market conditions more quickly, in contrast with the hours spent doing so if you’re a day trader.

A day trader may choose to trade the open and the close of daily trading sessions, so the first one to two hours of the trading day and the last one to two hours as well.

A swing trader can only monitor the last ten minutes of the daily trading session to confirm that the trading conditions have not changed and to check the profits or losses of the open positions.

Difference 2: Trading Methods Are Different

You’ll benefit from different types of price swings (large or small) with each trading type. The main difference between these two trading methods is the frequency of trades.

Day trading is more active, in that you buy or short sell volatile stocks as required to take advantage of projected price movement, and day traders may make only one or a few trades during any given day.

Swing trading, on the other hand, may hold a position for a few days or even weeks to take advantage of larger price swings.

Technical analysis is very important for both types of trading, but day traders usually employ more advanced charting techniques. They typically need to monitor important price levels and indicators for short term profits. A swing trader may also use technical analysis to determine the timing of trades, but the need to monitor trades each day is not as crucial.

Day traders also place importance on moving averages, overbought or oversold conditions for a few indicators and support or resistance price levels. Swing traders only need to monitor all open positions at the close of the daily trading session, which can be done within a few minutes, in contrast with the hours required by day traders.

Difference 3: Pattern-Day Trading Isn’t A Concern For Both

Under FINRA rules, customers who are deemed “pattern day traders” must have at least $25,000 in their accounts and can only trade in margin accounts.

This does not apply for swing trading as there could be a significant smaller amount of trades taken over time. FINRA rules define a “pattern day trader” as any customer who executes four or more “day trades” within five business days, provided that the number of day trades represents more than 6% of the customer’s total trades in the margin account for that same five business day period.

This rule represents a minimum requirement, and some broker-dealers use a slightly broader definition in determining whether a customer qualifies as a “pattern day trader.”

Difference 4: Start-Up Costs and Ongoing Expenses Differ

Day trading has higher start-up costs and ongoing expenses than swing trading. Costs include charts, online news feed, alerts and live price quotes. Swing trading can be made only monitoring the daily charts once per day, with free charts, not during the whole daily trading session.

The following table summarizes the main pros and cons of each trading strategy. It can be a useful reference to decide which one of the two investment strategies makes sense for you.

Day Trading Pros Sing Trading Pros
Potential to make substantial profits Does not have to be a full-time job
Being your own boss Potential for significant profits
Never a dull moment Constant monitoring not required
Expensive education not required Less stress and risk of burnout

Final Thoughts

Day trading is more suitable for investors who are not novice traders, have significant experience trading for several years and have the proper mentality to sustain intense stress levels due to the daily volatility in the financial markets.

Swing trading is a more balanced way of trading, as it does not require constant monitoring of financial markets, and at the same time, it offers the potential for risk-adjusted trades with potential profitability. It’s not easy to claim that one trading activity is better than the other one. Each type of trading has its pros and cons.

The main factor to consider is how much time and effort you’re willing to commit to monitoring the stock market or other financial market sessions.

Want to learn more? Check out Benzinga’s guides to the best swing trading courses, the best day trading courses and the best swing trading stocks.