One of the most common questions I get asked is whether to focus more on day trading or swing trading, or focus on both? The answer depends on your experience level, your goals, your preferences, your time availability, and in some cases your capital.
Swing trading is taking trades that last more than a day; typically several days to several weeks (even months). Day trading is taking at least one, but usually multiple trades each day, but closing all those positions before the end of the day. Day trades last minutes to hours.
First off, I swing trade and day trade.
I typically (but not always) focus on one market at a time and will focus on that market for many months or years, and then will sometimes shift to another market if I see more opportunities there. For example, I will day trade and/or swing trade the forex market for a year or two if the stock market isn’t producing a lot of trades that meet my strategy. Then I will day trade and/or swing trade the stock market for a year or two if it is producing lots of quality trades. Sometimes both are producing quality trades, so I will pick one market to day trade but may swing trade both markets (swing trading takes up less time, so it is easier to scan through both markets in the evenings and place trades). You don’t need to switch market, ideally, you should stick to one, but early on I started trading multiple markets, and so I have kept this pattern for myself.
Another common question I get is which market is better to swing trade or day trade…stocks, options, futures, or forex? I like them all, and all are equal in my eyes. Stocks require more capital, but other than that you should be able to produce the same income in each. For a bit more insight into each market, see Which Market to Day Trade?.
Swing Trading Versus Day Trading, the Pros and Cons
Swing trading takes less time than day trading because you don’t need to constantly watch the screen.
Swing trading can be done predominantly in the evenings (look for trades when the market is closed), whereas day trading needs to done while the market is open and active. Therefore, whether you day trade or swing trade, it is possible to start doing the other when you are ready.
It is possible to theoretically compound gains quicker with day trading since the trade turnover is quicker. In reality, this is quite difficult to do for an extended period of time since it becomes harder and harder to push more size without adjusting a strategy or mentally hitting a limit. Over longer periods of time, I find swing trading easier to compound gains because it is easier to incrementally increase position size on the longer-term trades (which typically start with a smaller position size than what you would have with a day trade).
Swing trading can be chaotic at times, but day trading typically has more action and favors those who like to be more engaged. Swing trading takes work and research, but may involve no actual trading for days or weeks at a time. Therefore, your personality may draw you more to one style or other.
If trading the stock market, you need $25,000 to start day trading, but there is no minimum to start swing trading. For forex you can swing trade or day trade with any amount, but I’d recommend starting with at least $1,000 or more. Swing trading futures will require more capital than day trading futures. Options to me are more of a swing trading market, so I don’t’ really consider them for day trading.
Swing trading and day trading are both hard. The success rates are low. In my opinion, the chance of making a livable income are the same. As mentioned though, you should theoretically be able to make a livable income on less capital with day trading, since you can compound gains quicker and therefore theoretically make higher percentage returns than with swing trading. Ultimately though, the trader actually has to produce those results. Since both styles of trading are difficult, so it is possible that with taking more trades (with a poor method or weak discipline) a day trader could also compound their losses much quicker than with swing trading.
Start with One or the Other
It’s probably best to pick one market, and then decide whether you will day trade it or swing trade it. There is a lot to learn so trying to do both correctly at the start may be too overwhelming and actually slow your progress toward profitability.
Focus on swing trading or day trading and get good at it. Once consistent, only then consider adding the other…and adding the other is not required! If you like swing trading or day trading, and you’re doing well, you don’t need to mess with that.
Look at your time availability and capital availability, as these will steer you towards markets you can trade now, and how you can trade them.
Alternatively, if you have a strong preference for a market and trading style which your current circumstances don’t allow, then you’ll need to work on rearranging some things to make it work. I like this latter approach, because if you feel strongly about something you are more likely to work hard it, and having to rearrange and make sacrifices for it shows you are hungry and are more likely to prepare yourself financially for the long struggle it is to become a successful trader.
By Cory Mitchell, CMT