Difference between day trading and swing trading (Which is better in the end?)

Day trading and swing trading are different approaches to pursuing profits in the forex and stock markets. Knowing which is best for you may have a significant impact on your investment results.

This article will focus on the differences between day trading and swing trading, compare the advantages and disadvantages of each in detail, and reveal which is ultimately right for you.

This article will help you choose whether to day trade, swing trade, or a combination of both, depending on your trading style and goals. Take the first step toward trading success through this article.

First, let’s look at the difference between day trading and swing trading.

Difference between day trading and swing trading

What is the difference between day trading and swing trading? The difference can be understood by grasping the characteristics and essence of each.

Simply put, day trading is a style of trading that seeks quick trades and instant profits and is characterized by closing positions at the end of the day. Swing trading, on the other hand, takes a longer-term perspective and typically holds positions on a weekly or monthly basis. Both styles require unique strategies and skills, and risk management is essential.

Let’s take a closer look at the features and differences of each.

Characteristics of Daytona

Day trading is a trading style in which entry and settlement are made between the Oceania market and the New York market. This trading style aims to take advantage of short-term market fluctuations and profit from small price changes.

In the FX market, the daily trading period is from early morning Japan time until the New York market closes, and closing within this time frame avoids the impact of swap points. Day traders typically use 5-minute to 1-hour charts and aim for profits of 15 to 30 pips for low-volatility currency pairs and 40 to 50 pips for high-volatility currency pairs.

Compared to scalping, the number of trades is smaller, but positions are actively taken when profit opportunities arise. Technical analysis is the main focus, and the release schedule of economic indicators must be closely monitored in order to respond to sudden market fluctuations. Compared to swing trading, the profit margin is narrower, but the aim is to achieve higher profits by increasing the trading volume and utilizing appropriate leverage.

Characteristics of Swing

Swing trading is a medium- to long-term trading style that is conducted on a day-to-day basis and aims to profit from trends that last from a few days to a few weeks. This strategy often involves taking positions along the flow of market trends, with the goal of profiting from larger trends.

Swing traders also take into account the impact of swap points that currency pairs have. In addition to technical analysis, swing traders analyze economic conditions and monetary policy trends from a long-term perspective, as fundamental fluctuations also have a significant impact.

Although the number of trades is smaller than that of day trading, the profit to be targeted per trade is larger, and the amount of positions is often set conservatively to counter the risk of market fluctuations due to the release of economic indicators or statements by key figures. Overall, this style of trading is based on an understanding of the larger economic trends, rather than on the joys and sorrows of minor market movements.

Difference

The main difference between day trading and swing trading is the duration of the trade and the associated strategic approach.

Day trading takes advantage of short-term market movements, making multiple trades during a single day and requiring quick decisions. Swing trading, on the other hand, analyzes market trends over a longer time horizon and trades based on trends, allowing for relatively calm decision making. Day trading requires immediate reaction to minor market fluctuations, which can increase stress and requires psychological strength and continuous market monitoring.

Swing traders focus on major economic events and fluctuations that the market is expected to reflect based on both technical and fundamental analysis. They also differ in their use of leverage, with day traders often using higher leverage, whereas swing traders typically take a more conservative approach. These differences make each trading style suitable for different types of traders.

(Comparison) Advantages and disadvantages of day trading and swinging

Day trading and swing trading are common approaches to trading in Forex, but each has its own advantages and limitations. This section provides a comparison of the advantages and disadvantages of each.

Let’s start by looking at the advantages and disadvantages of day trading.

Advantages and disadvantages of day trading

Day trading is a trading method that concentrates on short periods of time to take advantage of small price fluctuations and pursue profits. The biggest advantage is that by opening and closing positions within a day, you can avoid the risk of carrying over nighttime positions. Since you can start trading with small amounts, it is also a very capital-efficient way to trade.

However, the disadvantage is that as the number of trades increases, so does the cost due to spreads and commissions. In addition, day trading requires constant monitoring of the market and quick decision making, which tends to place a heavy mental burden on the trader.

While the use of leverage has the potential to generate significant returns, risk management is critical. Losses can be minimized through proper margin maintenance controls, position sizing, and strict stop-loss rules.

The key to avoiding mistakes in day trading

Day trading is a style of trading that requires results in a short period of time and requires frequent trading, which is extremely mentally stressful. It requires real-time monitoring of daily market movements and forces quick decision making. In addition, short-term market forecasting is not easy and often a source of stress.

To cope with these stresses, temporary withdrawal from the market and activities that promote relaxation are effective. It is also important to maintain a strong psychological state that does not allow one to feel happy or sad about the outcome of a trade.

In day trading, risk management is very important, especially when using leverage.

High leverage relative to the funds used to trade offers the opportunity for large profits, but it requires careful money management to respond quickly to sudden market fluctuations and to minimize losses.

In particular, proper management of margin maintenance ratio and awareness of avoiding margin calls and loss cuts are required. In addition, proper adjustment of position size and strict adherence to loss-cut rules will ensure that traders can trade with peace of mind against unexpected market movements.

Advantages and disadvantages of swinging

Swing trading is a strategy of profiting from large price fluctuations by analyzing medium- and long-term market trends. In this trading style, the greater the price fluctuation, the greater the profit opportunity and the more you can expect to earn through swap points. Swap points are generated by the difference in interest rates between different currencies and can be earned through long-term holdings, especially in high-interest currencies. In addition, the number of transactions tends to be small and the percentage of transaction costs tends to be low accordingly, since the goal is to make a large profit from a single transaction.

However, swing trading also entails risks. If the trend reverses, you may incur significant losses. Furthermore, it cannot be denied that the longer the holding period, the greater the exposure to sudden market fluctuations and the greater the mental burden. In addition, sudden market fluctuations may cause the stop loss you set to fail to operate, leading to unexpectedly large losses.

The key to avoiding failure in swing trades

To take advantage of swap points, it is important to choose a currency pair with a large interest rate differential. Some trading platforms offer different swap point conditions for different account types, so it is important to choose an account on a platform like ThreeTrader.

Pure Spread accounts offer wider spreads than Raw Spread accounts, so you can maximize your profits through swap points by choosing the account best suited to your individual trading style.

The key to success in swing trading is to have a big picture perspective. It is important to use moving averages and oscillator indicators to capture trend changes and develop strategies. In particular, the 240MA recommended in ThreeTrader’s Daily Market Report is a useful source of information. Trend analysis centered on the daily 240MA and using the Equilibrium Chart to decipher the balance of the market will allow you to trade with greater precision.

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Which is better in the end, day trading or swing trading?

Which is ultimately best, day trading or swing trading?

In conclusion, which is more advantageous depends on the situation and the occasion. Therefore, the most important thing is to choose the appropriate style for the situation.

In this section, we will show you the situations in which day trading is advantageous and those in which swing trading shines. Understanding when each is advantageous will help you develop the skills to make the right choices for different trading situations and pave the way to success.

We will start by explaining the situations in which day trading is advantageous.

Situations where day trading is advantageous

The main attraction of day trading lies in the immediate gains that can be made through high-frequency trading over a short period of time. Specific lucrative scenarios include situations in which the market captures large market movements at the moment of following the release of important economic indicators, or trading for the purpose of accumulating small profits based on technical analysis.

Day trading is also an excellent tool for traders who seek quick profit-taking without the nervousness of fluctuating position gains and losses and avoiding short-term market commotion. It is also ideal for traders who wish to trade currency pairs with negative swap points, avoid the risk of uncertain price fluctuations late at night, and who can adhere to strict trading rules and use short-term charts ranging from 5-minute to 1-hour time frames.

Day trading generally emphasizes technical analysis. Even if the major trend is upward, there may be downside during the day. As such, day trading also utilizes the trend of shorter time frames.

For example, the chart below is an hourly chart of the dollar-yen, showing the 240 MA and the ADX technical indicator, which measures the strength or weakness of a trend.

When the candlestick is above the moving average, we trade with a buy perspective, and conversely, when the candlestick is below the moving average, we look for a point where we can enter a sell entry. In doing so, we confirm the strength or weakness of the trend.

Day trading offers many opportunities, but you must cut your losses strictly when the market fluctuates in the opposite direction to your expectations. While there are many chances, the risk is also high. Also, the profit margin is small, so the amount of positions tends to be large. Therefore, it is suitable for those who are able to discipline themselves.

Furthermore, the strategy of pursuing short-term profits through the appropriate use of leverage is also a strength of day trading. Thus, day trading shows its true value in an environment where quick decisions and actions are required.

Situations where swinging is advantageous

For swing trading, a trend following strategy is recommended based on medium to long term analysis. It allows you to capture major market movements and trend waves over a span of a few days to a few weeks to earn profits. It is also advantageous when the currency pair you are targeting offers high swap points due to interest rate differentials and when the direction of the trade is consistent with a favorable long-term forecast.

For example, as of 2023, the U.S. dollar has higher interest rates than the yen, so a position in the direction of appreciation will generate positive swap points. Below is a daily chart of the dollar-yen in 2023.

The dollar has formed a large upward channel since January 2023, and the swing trading approach is to aim for a push and make an entry.

Also, currencies with higher interest rates are more likely to be bought than those with lower interest rates; when trading forex, policy rates and interest rate forecasts announced by central banks are often major trending factors.

Swing trading is suitable for traders who prefer to analyze the market in the big picture without being influenced by detailed market movements and who prefer to trade based on longer-term legs, such as four-hour legs or longer. Swing trading allows traders to anticipate additional income, including swap points, and to trade more deliberately without worrying about short-term market noise.

Utilize day trading and swing with Threetrader

ThreeTrader is notable for offering two account types to meet traders’ needs: the Raw Zero account and the Pure Spread account, and, unusually for a forex broker, each account type has a different swap point policy, allowing traders to choose the best terms for their trading style. This allows traders to choose the conditions that best suit their trading style.

The Pure Spread account is a particularly attractive option for swing traders who plan to hold positions for an extended period of time, as it offers nearly twice the swap points of the Raw Zero account, while requiring no transaction fees. This allows them to maximize their profits by taking advantage of swap points as the market moves.

However, careful consideration must be given to negative swaps. On the other hand, day traders who focus on short-term trading can reduce their trading costs and increase their profit margins by choosing a Raw Zero account with low spreads. Since day traders trade frequently, and even a small cost reduction can have a significant impact on total profits, the Raw Zero account is a good type of account for day trading.

These features allow ThreeTrader to tailor account selection to individual trading strategies and provide powerful support to help traders gain a competitive edge in the marketplace.

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Summary｜Differences between day trading and swing trading

Throughout this article, we have clarified the differences between day trading and swing trading, the characteristics of each, and their advantages and disadvantages. As we have reported, whether day trading or swing trading is more advantageous depends on the situation and circumstances. Therefore, the most important thing is to choose the appropriate style depending on the situation.

Day trading is a style that pursues quick trades and instant profits and is sensitive to intraday market fluctuations. Swing trading takes a longer-term perspective and pursues trends. Both styles require unique strategies and skills to follow a successful path, and risk management is essential.

Ultimately, through your own experience, you will be able to find which style is best for you. As a result, you will be able to minimize your risk of loss and maximize your profits. Take the knowledge gained in this article and immediately put it into practice in your trading.