Day trading, intraday trading, and swing trading are some of the most popular styles of trading in the financial markets, especially in the equity market. Traders use to trade with various types of trading strategies under these two types of trading techniques. Both trading styles differ in ways you can see.
Understanding the difference between day trading and swing trading will not only help you to differentiate your trading strategies and habits, but also make you understand risk and profitability level in them. Moving further in this blog, we will find out the difference between swing trading and day trading and which one is suitable for which kind of market participant.
What is Day Trading or Intraday Trading?
Intraday trader buys or sells security during usual market hours but have to square-off their position before market closes. A trader can trade multiple time in underlying or trade in multiple securities but again, the trade have to be squared off on the same day before the market closes.
If you have bought stock of any company for intraday trading, then you have to sell the same company stock in the same quantity. In day trading you can sell the stock you actually don’t have in your demat account, that is known as short selling.
But finally at the time of market closing you have to buy the same quantity of shares of the same company otherwise your broker will automatically close your position. Hence, at the time of trading, you have to select the type of trading you are placing the order for intraday trading or positional trading, which means you are ready to take delivery of shares into your demat account.
What is Swing Trading in the Stock Market?
A market participant doing swing trading usually holds the bought underlying for time periods ranging from 1 week to several months. It is a delivery-based trading style in which you can buy the stock when it is near its bottom and keep the underlying to take upward swing of the stock. The stock to show momentum can take time ranging from weeks or even months.
Compared to intraday trading, for selection of swing stocks, you have plenty of time to do fundamental analysis and technical analysis to make well-informed decisions. Run comparison between stocks or even exit the stock with small profit when your view changes. For new traders or beginners, swing trading would be much easier and less risky compared to intraday trading.
What are the Difference Between Swing Trading and Day Trading?
Meaning
Intraday or Day Trading is buying and selling the underlying security and squaring off the position s on the same day. Intraday trader doesn’t take delivery of shares or carry their position for the next day. All the positions are either squared off by trader before the market closes or the broker automatically square off them at a profit or loss.
On the contrary with intraday trading, Swing Trading is a delivery-based trading strategy in which a trader holds its positions for the next day, weeks or for several months. In swing trading, a trader picks stocks at its bottom, when it hasn’t yet started moving but will give movement in few days. Traders doing swing trading stands to gain for upside movement in stock.
Time Period
The time horizon or you can say the trading time period of Intraday Trading is one day. This means you have one day to buy the stock and sell it or vice versa. In day trading you can enter into multiple trade positions but ultimately you have to close all the trade positions or exit whether it’s in loss or in profit you can’t carry your trade positions.
In Swing Trading the time horizon is much longer up to many days, weeks or months that totally depend on your decision on how long you want to hold your positions. You can buy stocks at the support levels and sell or book the profits at the resistance levels. However, if you earn the profit on the same day you can exit from your trade position on the same day, then delivery of shares will be not credited to your demat account.
Margins Allowed
For intraday trading, your broker can allow the margins to trade multiple times than the fund available in your trading. In day trading you can enjoy the high leverage compared to swing trading and this advantage will allow you to enjoy the high value of trade even if you don’t have sufficient funds making your rate returns on funds invested high.
In Swing Trading your broker will not allow you more than two times margins on the funds you have available in your trading account. The benefit of leverage in swing trading is much lower, hence you need a sufficient amount of capital to buy the shares, as you have to pay the full value of your trade before the delivery of shares credited into your demat account.
Risk & Rewards
In Day Trading the risk and reward both are very high, especially in volatile market conditions. If the stock moves as per your expectations you can gain the profit on the same day. If the stock price is not moving as per your expected direction then you can incur a loss.
Though traders use the stop loss strategy to trade in the day trading to limit their risk still due to the availability of one day to make a trade decision, enter into the trade position and book the profit or exit on the same day making this high-risk reward trading method.
In Swing Trading the risk level is lower as you can hold your trade positions till it becomes in profit. Though, overnight there could be a sudden change in the market trend that can cause you major losses but still there is room to wait till your losses recover. Holding your trade position for longer days also provides you with a better opportunity to get high returns.
Time and Efforts
In day trading you have to keep an eye on all your trade positions if there is any significant movement you can take the right action. In day trading minor gains are the profits booking opportunities for the traders but to enjoy such rewards you need to keep monitoring your computer screen for the whole day during the market hours.
In Swing Trading you buy the shares and hold the same for many days till you get some profits. Hence you don’t need to sit on your chair to watch the computer screen for the whole day. You can occasionally check or set alerts when prices touch the profit booking point. Here you need to spend less time monitoring your trade positions but need to spend extra time and effort to perform the fundamental analysis for analyzing the stocks.
Capital Requirements
In day trading if you have fewer amounts of funds available, still you can trade in higher trade value as you can enjoy the margin of money from your broker multiple times than the funds available with you. However, if you have sufficient funds available with you then you can trade in multiple trades in day trading, as end of the day all your trade positions will be liquidated.
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