Day Trading vs. Swing Trading

a trader sitting in front of three side-by-side computer monitors

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The time frame on which a trader opts to trade can significantly impact trading strategy and profitability. Day traders open and close multiple positions within a single day. In contrast, swing traders take trades that last multiple days, weeks, or even months. These two different trading styles can suit various traders depending on the amount of capital available, time availability, psychology, and the market being traded.

One trading style isn't better than another, and it really comes down to which style suits an individual trader's circumstances. Some traders opt to do one or the other, while others may be day traders, swing traders, and buy-and-hold investors all at once.

Day Trading Versus Swing Trading: Potential Returns

Day trading attracts traders looking for rapid compounding of returns. Assume a trader risks 0.5% (half) of their capital on each trade. If they lose, they'll lose 0.5%, but if they win, they'll make 1% (2:1 reward-to-risk ratio).

Also, assume they win half of their trades. If the trader makes six trades per day—on average—they will be adding about 1.5% to their account balance each day, less trading fees, and even making 1% a day would grow the trader's account by more than 200% over the year, uncompounded.

On the flip side, while the numbers seem easy to replicate for huge returns, nothing's ever that easy. Making twice as much on winners as you lost on losers, while also winning 50% of all the trades you take, doesn't come easily. You can make quick gains, but you can also rapidly deplete your trading account through day trading.

Swing trading accumulates gains and losses more slowly than day trading, but you can still have certain swing trades that quickly result in big gains or losses. Assume a swing trader uses the same risk management rule and risks 50% of their capital on each trade to try to make 1% to 2% on their winning trades.

Assume they earn 1.5% on average for winning trades, losing 0.5% on losing trades. They make six trades per month and win half of those trades. In a typical month, the swing trader could make 3% on their account balance, reflecting the fewer fees. Over the year, that comes out to about 36%, which sounds good but offers less potential than a day trader's possible earnings.

These example scenarios serve to illustrate the distinction between the two trading styles. Altering the percentage of trades won, the average win compared to average loss, or the number of trades, will drastically affect a strategy's earning potential.

As a general rule, day trading has more profit potential, at least on smaller accounts. As the size of the account grows, it becomes harder to utilize all the capital on very short-term day trades effectively.

Day traders may find their percentage returns decline the more capital they have. Their dollar returns may still go up, since making 5% on $1 million equates to much more than 20% on $100,000. Swing traders have less chance of this happening.

Varying Capital Requirements

Capital requirements vary according to the market being trading. Day trading and swing traders can start with differing amounts of capital, depending on whether they trade the stock, forex, or futures market.

Day trading stocks in the US requires an account balance of at least $25,000. No legal minimum exists to swing trade stocks. However, a swing trader will likely want to have at least $10,000 in their account, and preferably $20,000 if looking to draw an income from trading.

No legal minimum exists to day trade the forex market, but it is recommended that traders start with at least $500, but preferably $1,000 or more. To swing trade forex, the minimum recommended is about $1,500, but preferably more. This amount of capital will allow you to enter at least a few trades at one time.

For day trading futures, start with at least $5,000 to $7,500, and more capital would be even better. These amounts depend on the futures contract being traded. Day trading some contracts could require much more capital, while a few contracts, such as micro contracts, may require less.

To swing trade a variety of futures contracts, you need at least $10,000, and likely $20,000 or more. The amount needed depends on the margin requirements of the specific contract being traded.

Trading Times Differ

Both day trading and swing trading require time, but day trading typically takes up much more time. Day traders usually trade for at least two hours per day. Adding on preparation time and chart/trading review means spending at least three to four hours at the computer, at a minimum. If a day trader opts to trade for more than a couple of hours a day, the time investment goes up considerably and becomes a full-time job.

Swing trading, on the other hand, can take much less time. For example, if you're swing trading off a daily chart, you could find new trades and update orders on current positions in about 45 minutes a night. These activities may not even be required on a nightly basis.

Some swing traders, taking trades that last weeks or months, may only need to look for trades and update orders once a week, bringing the time commitment down to about an hour per week instead of per night, or updating orders may not even be required on a nightly basis. 

You must also do day trading while a market is open and active. The most effective hours for day trading are limited to certain periods of the day. If you can't day trade during those hours, then choose swing trading as a better option. Swing traders can look for trades or place orders at any time of day, even after the market has closed.

Swing traders are less affected by the second-to-second changes in the price of an asset. They focus on the bigger picture, typically looking at daily charts, so placing trades after the market closes on a particular day works fine. Day traders make money off second-by-second movements, so they need to be involved while the action is happening.

Focus, Time, and Practice

Swing trading and day trading both require a good deal of work and knowledge to generate profits consistently. However, the knowledge required isn't necessarily "book smarts." Successful trading results from finding a strategy that produces an edge, or a profit over a significant number of trades, and then executing that strategy over and over again.

Some knowledge on the market being traded and one profitable strategy can start generating income, with lots of practice. Each day prices move differently than they did on the last. This fluctuation means the trader needs to be able to implement their strategy under various conditions and adapt as conditions change.

This need for flexibility presents a difficult challenge. Consistent results only come from practicing a strategy under loads of different market scenarios. That takes time and should involve making hundreds of trades in a demo account before risking real capital.

Choosing day trading or swing trading also comes down to personality. Day trading typically involves more stress, requires sustained focus for extended periods, and takes incredible discipline. People that like action, have fast reflexes, or like video games and poker tend to gravitate toward day trading.

Swing trading happens at a slower pace, with much longer lapses between actions like entering or exiting trades. It can still be high stress, and also requires immense discipline and patience.

It doesn't require as much sustained focus, so if you have difficulty staying focused, swing trading may be the better option. Fast reflexes don't matter in swing trading as trades can be taken after the market closes and prices have stopped moving.

Day trading and swing trading both offer freedom in the sense that a trader is their boss. Traders typically work on their own. They are responsible for funding their accounts and for all losses and profits generated. One can argue that swing traders have more freedom because swing trading takes up less time than day trading.

A Final Comparison

One trading style isn't better than the other; they just suit differing needs. Day trading has more profit potential, at least in percentage terms on smaller-sized trading accounts. Swing traders have a better chance of maintaining their percentage returns even as their account grows, up to a certain point.

Capital requirements vary quite a bit across the different markets and trading styles. Day trading requires more time than swing trading, while both take a great deal of practice to gain consistency. Day trading makes the best option for action lovers. Those seeking a lower-stress and less time-intensive option can embrace swing trading.

The Balance does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal.