Swing Trading Strategies Could be the Key to Day Trading

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Day trading can sound so alluring.  For day traders, each day you go to “work” by making trades in the stock market and building up your account balance.  Heck, that’s not work; that’s just plain old fun!  

And if you can make, say, 1% of profit per day on your account from day trading, think about the potential account growth over time. 

But as anyone who has tried day trading can tell you, it’s definitely not that easy.  There is a tough learning curve, and a costly one.  For many people, right when they think they are starting to get a grip on things, a big loss day comes around and reminds them they may not actually be any good at day trading.

And if you talk to people who have tried day trading, it’s hard to find one who has truly made a substantial profit for a sustained period of time.  It’s almost like trying to find a unicorn.

There might be a reason why day trading is so hard.  According to Eric Ferguson, owner of the stock-picking service Mindful Trader, “There may not be many significant statistical edges available to day traders.”  

Ferguson, a Stanford graduate, spent several years researching stock market price data.  He took a quantitative approach to finding price patterns and edges in the market.  His research showed there were not many robust statistical edges available on an intraday time frame, which is what day traders typically focus on.

Ferguson says, “From a statistical perspective based on technical trading, I couldn’t find any meaningful edges for day trading through my research.”

He did, however, find some core swing trading strategies that appear to have an exciting back-tested edge.  Swing trades are ones that last a matter of days or weeks, as opposed to day trades that typically last a matter of hours or minutes.

“It was much easier to find swing trading strategies that may have generated solid net profits in back tests.  If a person switches their time frame from that of day trading to that of swing trading, there might be noticeably better odds of finding trade strategies that could generate sustained profitability over time.”

Many people choose day trading in the first place due to its potential for outrageous account growth.  That 1% per day, with compounding, could turn into something insane.  But if you look at your own track record and aren’t seeing anything resembling that type of growth, or if you realize maybe you aren’t one of those rare unicorns who is actually good at day trading, perhaps shifting gears to more realistic expectations could help.  

And after all, just because you’re swing trading certainly doesn’t mean your profit potential is totally shot.  It’s not like you’d necessarily be settling for something as modest as, say, the annual return of the S&P 500.  According to Ferguson, the back-tested return of his trading strategies at Mindful Trader were north of 100% per year.  He’s quick to point out that back tests have limitations, but nevertheless, that’s likely an alternative worth exploring for struggling day traders.

If you’re starting to think the promise of day trading riches might be more hype than reality, then you might want to explore the idea of swing trading.  And as you go down that path, it might make sense to check out Ferguson’s stock-picking service, where he teaches all his back-tested trade setups.  Making trades where history shows the odds could be in your favor is like hitting the Easy button.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.