Swing Trading vs. Day Trading: Key Differences, Pros & Cons, and Choosing the Right Strategy
1/27/2025, 2:12:15 PM
Swing trading and day trading are distinct trading styles. Swing trading needs less focus and has stable returns, while day trading has higher risk and reward.
One of the most significant decisions in your trading journey is about choosing the trading style. The common approaches are swing trading and day trading. Both have the potential to earn high profits; they cater to different risk tolerances, schedules and personalities. Once you understand the difference in detail, you can opt for the right style that aligns with your trading goals.
This article breaks down the major differences between swing trading and day trading and assesses the pros and cons of each. Moreover, we’ll discuss how FundingPips, a top-notch prop firm, can empower your trading career.
Introducing the Trading Styles
Trading is not only buying and selling of assets. It is about how you reach your financial goals. Swing trading means holding a trade for several days or weeks to capture the market swing, while day trading is about opening and closing the positions on the same day.
Picking the wrong style may lead to frustration and losses, while the right approach that aligns with your objectives may smooth your journey. Hence, whether you are going to be a part-time trader or a full-timer, this guide provides you with valuable insight.
What is Swing Trading?
Swing trading is a medium-term trading style that benefits from market trends and reversals. In this style, a trader tries to capture a price swing within a broader trend. It requires holding a position for several days unless it reaches the target.
For example, imagine the GBP/USD has a strong bullish trend. A swing trader waits for a retracement, enters a long position at lower prices and holds for many days until the price sees a bearish reversal.
Swing traders usually depend on a mix of fundamental and technical analysis. They use charts to find the optimal entry and exit point while they consider economic factors like inflation, employment, etc., to confirm that their charts and fundamentals stay on the same page. This style is suitable for part-time traders or those who have day jobs.
What is Day Trading?
Day trading is a fast-paced style in which traders open and close the positions on the same day. It is an intraday style that focuses on capturing small price movements. Traders avoid overnight exposure by closing the positions before the day ends.
Let’s consider an example of a USD/CAD pair. The price ranges all day within a tight span, but just around the New York session, it breaks on the upside. A day trader uses smaller timeframe charts like 15-min to enter a long position after the breakout with a profit and loss target of 20 to 30 pips.
Key Differences Between Swing Trading and Day Trading
Now that you know the basics of both styles, let’s explore the major differences.
Time Commitment
Swing Trading: It is suitable for traders who cannot manage to dedicate time on a daily basis. You can analyze the market during your free moments and make the required adjustments.
Day Trading: It demands your full-time attention. You have to monitor charts, follow news and react quickly to the volatile price action.
Risk Level
Swing Trading: Exposure to overnight risks like unexpected news events or market gaps. However, trades tend to be less stressful since they aren’t as fast-paced.
Day Trading: High exposure to intraday volatility, requiring traders to handle rapid price fluctuations. The absence of overnight risk can be an advantage.
Capital Requirements
Swing Trading: You need substantial capital to start swing trading as your risk in terms of pips is high. Hence, you need a bigger capital to adjust the lot size to fit with a 1% risk per position. Moreover, you may be charged a swap fee for holding a position overnight.
Day Trading: You can start with lower capital as your risk per position in terms of pips is less. However, you may need higher leverage and margin.
Profit Potential
Swing Trading: It can provide a steady return over time if trades are well planned.
Day Trading: It can give you higher yields in less time. However, maintaining consistency is harder as you can experience the same amount of loss on any bad day.
Pros and Cons
After learning the basics and differences, let’s find out the pros and cons of each style.
Swing Trading
Pros:
You need less screen time, which makes it suitable for part-time traders.
Since you trade less, you incur less transaction cost.
It reduces your emotional stress compared to frequent trading.
Cons:
Swing trading is exposed to overnight risk and unexpected market gaps.
Profits are realized slower than that of day trading.
Day Trading
Pros:
Profits are realized quicker, perhaps in one to three hours.
You are safe from overnight exposure and swap fees.
Returns are higher due to short-term price volatility.
Cons:
It needs much time and focus, same as a full time job.
It demands emotional stability, especially during highly volatile moments.
Transaction cost mounts amid frequent trading.
Which Style is Right for You?
Choosing the right trading style depends on several factors:
Time Availability:
Swing trading is more practical for you if you have a day job or other commitments.
If you can dedicate more time every day, then day trading is suitable for you.
Risk Tolerance:
Swing trading is prone to hit swap fees. So, traders should plan about the cost and also slower trade cycles need more patience.
Day trading comes with high volatility. Hence, quick decision-making is required.
Financial Goals:
Swing trading suits steady growth objectives over time.
Day trading is ideal for those who want to risk higher to make quick returns.
Beginner Tip: Start with swing trading, as it requires less attention and risk. Once you gain confidence, transition to day trading to manage higher risks and go for higher yields.
Tools and Platforms for Both Trading Styles
Regardless of your trading style, you should have the right tools and platforms to properly work around.
Essential Tools
Risk Calculators: You can use calculators to find the right position size for your account.
Forex Calendars: You need a calendar to find out major news events of the day to plan your trading.
Trading Community: You should be part of a vibrant community to learn from others. Luckily, FundingPips has a great Discord Community.
Recommended Platforms
cTrader: Well known for being user-friendly and for its advanced features
Match-Trader: Simple platform suitable for beginner traders
TradeLocker: Offers great tools and suitable for beginners and pro traders alike
With FundingPips, you’ll gain access to premium trading tools, making it easier to focus on performance without the pressure of risking your capital.
Common Mistakes to Avoid
Swing Trading Mistakes
Neglecting the stop-loss usage can lead to significant losses.
Ignoring fundamental factors like interest rates, inflation, etc., can result in turning your profits into losses.
Day Trading Mistakes
Over-trading and revenge trading due to emotional decisions.
Failure to stick to risk management principles.
Final Thoughts
Swing and day trading are distinct styles that cater to different traders based on their requirements. Swing trading is flexible with steady returns, while day trading needs focus and comes with higher risk and reward.
Irrespective of your trading style, FundingPips helps you accelerate your trading career. Their funding programs and advanced tools with a great community help you overcome your trading issues and level up your skills.
Take the next step in your trading career with FundingPips. Visit FundingPips today and unlock your potential as a funded trader!
