If you recently got interested in trading, you may have seen the terms “day trading” and “swing trading.” It isn’t always clear to new traders what these terms mean.
They have a lot in common, but there are significant differences. Once you understand day trading vs swing trading, you can start deciding which strategy makes more sense for you.
Day Trading for Beginners: What Is It?
Day trading means buying stocks, commodities, or currencies at low prices with the hope of selling them at higher prices within a matter of minutes or hours. Basically, you purchase an investment and sell it within a day. That’s where the term “day trading” comes from.
Success as a day trader relies on a combination of analysis, quick thinking, and luck. The most successful day traders often treat trading like full-time jobs. You have to take this approach because values can change within minutes.
If you aren’t paying close attention to movements within the market, you will lose opportunities to profit.
Let’s look at an example of how day trading can lead to high returns. The following are real numbers that should help you understand how success and failure occur in day trading.
A Day Trading Success Story
On a recent trading day, at 9:50 AM (EDT), Walmart’s stock value fell to $120.02.
A savvy investor who has been tracking the company knows that the price is lower than usual, so he purchases 1,000 shares.
At 10:35 AM, the value of Walmart stock jumped to $121.61. That’s still a little low for the company, but there was a clear opportunity to make a quick profit, so the trader sold all 1,000 shares.
That trade earned the person $1.59 per share. That’s an overall profit of $1,590.
A Day Trading Failure Story
On the same day, the market opened with Walmart’s stock valued at $122.58.
Over the last five years, Walmart’s stock has averaged about $95 per share. The day trader got excited when he saw such a high opening stock price. He got so excited that he assumed the stock was about to rally even higher. He purchased 100 shares for a total of $12,258.
It didn’t take long for the day trader to see the error he’d made. When the stock reached $120.02 at 9:50 AM, he got very nervous and sold all of the shares to minimize his losses. Within less than half an hour, he had lost $256.
The story of a day trading failure could have gone much worse. Had the trader bought 1,000 shares, he would have lost $2,560. Luckily, he hedged his bet because he knew there was a possibility that the price could normalize instead of rally.
A Lesson From Day Trading Success and Failure
It’s important to notice that these stories have small differences. One person bought Walmart stock less than half an hour before the other. The small differences, though, result in thousands of dollars.
Swing Trading for Dummies
Swing trading has a lot in common with day trading. The biggest difference is that traders will often hold on to stocks, commodities, and currencies for several days or weeks before selling them. It’s still a short-term trading strategy, but it doesn’t involve profiting from tiny changes in the market from minute to minute.
Many beginning traders prefer swing trading because they don’t have to spend so much time paying attention to every movement in the market. They can keep an eye on their investments while working full-time jobs.
A Swing Trading Success Story
A swing trader had been watching Walmart’s stock prices for a few weeks. He noticed a slight fluctuation in value around May 13, so he bought 100 shares for $123.42 each on May 14. The total purchase came to $12,442.
He checked in on the price a few times a day, looking for the perfect opportunity to sell the shares.
On May 18, he saw that the stock’s price had reached $127.66. After some quick calculations, he decided that he was ready to sell.
Making $424 seemed like a pretty good return, and he didn’t want to risk losing money if the value fell.
A Swing Trading Failure Story
A different swing trader didn’t make such a good decision. Instead, he purchased 100 shares of Walmart stock on May 18 for a total of $12,766.
The price had been going up, so he thought that he would get in on the action. Buying now and selling in a couple of days could earn him a few hundred dollars!
That’s not what happened. Walmart’s stock value immediately started to fall. He didn’t want to lose money, so he held on to the stock for a few weeks.
On June 4, he decided that he was done with Walmart’s stock for now. He would cut his losses and invest in a different company.
On June 4, Walmart’s stock price had fallen to $122.11. The trader had lost $555. In this case, swing trading didn’t work out. It could have been worse, though. The price continued to fall. He would have lost an additional $55 if he’d sold it on June 6.
A Lesson From Swing Trading Success and Failure
Swing trading doesn’t need to take nearly as much time as day trading, but investors can still make or lose quite a bit of money from the strategy.
Day Trading Vs Swing Trading Strategies
Some key concepts to remember when comparing day trading vs swing trading strategies:
- Day trading takes a lot of time, so you may not have the option to work a full-time job if you’re committed to success.
- Day trading focuses on taking advantage of slight changes in the market, often within minutes or hours.
- Swing trading doesn’t require as much time and focus as day trading, so you can find success doing it on a part-time basis.
- Swing trading focuses on buying stocks, commodities, and currencies, and selling them within a few days or weeks.
- Day trading and swing trading can help you earn money quickly, but you can lose money just as fast.
Is Day Trading for a Living Realistic?
Some people see opportunities to earn money from day trading, so they decide to focus on it instead of working regular jobs. That leads to an important question: is day trading for a living realistic?
The fact of the matter is that you are unlikely to succeed at day trading without making it your full-time job. It requires so much time, research, and concentration that you will not have the resources to work outside of day trading.
That doesn’t mean you should quit your job and jump in headfirst. If you want to make a living from day trading, consider spending several months learning about effective strategies. You might even start as a swing trader who hopes to transition into day trading.
You probably won’t make much – if any – money during your first few months of trading. There’s a steep learning curve that makes it nearly impossible for beginners to excel.
If you have enough money and time to weather a few months of losses, though, you could potentially turn day trading into your full-time job. It’s a risky move, but some people do it.
Does Swing Trading Outperform Day Trading?
Neither swing trading or day trading necessarily outperform the other. It’s always a matter of successful vs unsuccessful investment strategies.
If you make inaccurate assumptions as a swing trader, you won’t make money. You will lose your capital quickly. The same is true of day trading. If you make a bad trade, then you will lose money.
While swing trading doesn’t outperform day trading, it does appeal to some people more. It helps that swing traders can continue working their regular jobs instead of spending their days glued to computer screens. The ability to earn an income while profiting from swing trading lowers the overall risk of investing.
What Stocks Are Best for Day Trading?
The best stocks for day trading usually have high volatility. The prices change a lot throughout the day, so you have more opportunities to buy low and sell high.
High volume also makes stocks appealing to day traders. For beginners, “volume” tells you how many shares get traded in a day.
High volume often means that the stock is getting a lot of attention, which might indicate a sudden change in value.
The following list of companies often appeals to day traders. Keep in mind, though, that the market can evolve quickly. You always need to do research before you invest. If you don’t know the stock’s recent history, then you are much more likely to make decisions that lead to financial loss.
With that said, here are 10 stocks that you should look at:
- Basic Energy Services
- Bill Barrett Corp.
- Synergy Pharmaceuticals
- Advanced Micro Devices
Remember, success as a day trader relies on picking the right moments to buy and sell. Don’t count on any stock to make you money. Develop the skills needed to analyze volatility and volume so you can make smart choices. That’s the only way to succeed as a day trader.
Swing Trading Stocks: What Are Best?
The best swing trading stocks don’t always have high volumes or volatility. Instead, they show a general upward trend. Obviously, you need to rely on swings in the market. Still, you don’t need as much rapid movement as day traders.
Since the market can change at any moment, you need to research current trends to make informed decisions about sting trading stocks. You can start by learning more about:
You probably noticed that the day trading and swing trading lists share a few stocks. The stocks that work well for day traders often help swing traders earn money, too. In fact, you may want to try both approaches to maximize your profits.
Day Trading Vs Swing Trading: The Bottom Line
It’s impossible to say that day trading or swing trading works better than the other. Both strategies have their advantages and disadvantages.
People who succeed in day trading typically have:
- Time to research and follow investment options throughout the day.
- Excess money that they can lose without going broke.
- Analytics software that helps them choose the right stocks and the right times.
- A deep knowledge of market fluctuations.
People who tend to do well as swing traders often:
- Want to spend a couple of hours a day researching and tracking investments.
- Understand that all investments come with risk.
- Know how to balance risk and reward by choosing a variety of stocks, commodities, and currencies.
Don’t expect to succeed as a trader until you get a few months of experience. Success looks different for everyone, but you need experience to thrive as a day trader or a swing trader.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.