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Day Trading vs. Swing Trading

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Roger Wohlner
Updated March 2, 2023
4 Min Read

Day trading and swing trading are two forms of active trading used by traders hoping to profit from short-term swings in the markets for stocks, commodities, currencies or other financial vehicles. While both strategies are short-term, there are some differences in the approach used by day traders and swing traders. 

What is day trading? 

Day traders often make multiple trades in one or more stocks in a single day. They typically use technical analysis and sophisticated charting to make their trading decisions. Day traders are looking to make small profits on a number of positions in stocks, commodities or currencies and mitigate their losses on unprofitable trades. 

The potential for a large, spectacular profit on a trade due to a sharp upward spike in the price of the trading vehicle is a lure of day trading. But the reality is that this type of situation is rare. While day traders may hit that rare big winner, this is the exception rather than the rule for day traders. 

Most experts, including the Securities and Exchange Commission (SEC), caution that many day traders experience severe losses.

The SEC goes on to caution those who are considering engaging in day trading should only risk money that they can afford to lose. The SEC cites several things those contemplating engaging in day trading should consider: 

  • Be prepared to suffer financial losses. They cite the fact that many day traders tend to suffer losses in their first few months of day trading. They stress that day traders should never risk money they need for essential living expenses.
  • Day trading is not investing. Day traders make or lose money based on the intra-day movements of a particular stock.
  • Day trading can be a very stressful and expensive full-time activity. Since day traders essentially sit in front of a computer screen all day tracking the movement of the stocks and other financial instruments, it would be difficult to hold down a full-time job in addition to doing this.
  • Day trading often depends on the use of borrowed money including buying stocks on margin. This is risky if your bets don’t pay off, not only will you have lost money on the trade but you are now in debt as well.
  • Beware of hot tips and educational seminars. In both cases the information may not be objective. In the case of investing tips, the tipster might have a vested interest in providing the tip. The educational sessions may be tied to getting you to participate in day trading as well. 

Beyond this, capital gains from day trading will be taxed at the higher short-term capital gains rate. Overall, the tax situation for day traders can be complex, be sure you understand it or that you work with a tax professional who does. 

What is swing trading? 

Swing trading is about identifying price swings in individual stocks, commodities, currencies and other types of investment vehicles. These swings would typically occur over a period of several days to weeks or longer. Swing traders are less likely than day traders to do this on a full time basis due to the longer time period involved. A person can be both a day trader and swing trader as well. 

Swing trading is more about tracking the trends in a stock or other investment vehicles. There is not the urgency to take action on these trends as there is with day trading. The trades often take a longer time to work out than a day trading transaction. This can work to the swing trader’s advantage rather than closing out a position each day. 

A few other points about swing trading: 

  • Swing trading generally involves positions that are held overnight or longer. This longer holding period means that margin requirements, if used, are higher than with securities that are bought and sold within the same day.
  • The fact that these positions are held for a longer period of time means that the swing trader can use stop or stop limit orders to limit their downside exposure on the position.
  • Swing traders do not need to do this on a full-time basis since they do not have to track their open positions on a constant basis. This makes swing trading generally less stressful than day trading.
  • Swing trading does not require several computer screens and special software so it can generally be done on the investor’s normal computer. 

Differences between Day Trading and Swing Trading 

Day trading and swing trading are different approaches to shorter term trading. Here are some key differences: 

Day tradingSwing trading
Trading frequency
Numerous trades each day
Several trades during the week or less frequently
Holding period of positions
From several hours to days
Several days to several weeks or more
Time commitment
Full-time to be effective
Can be done on a part-time basis
Trading triggers
Short-term buy and sell signals
Price trends and directional momentum indicators
Tools and technology needed
State-of-the art trading tools and technology
A standard brokerage account and a normal computer
Magnitude of gains and losses
Multiple small gains and losses
Fewer, more sizable gains and losses
Considerable, losing 100% of your capital is possible
Les risk due to the longer holding period for positions

Day trading is very risky and is probably tougher to master than swing trading. However both strategies take work and commitment to master. 

Is day trading or swing trading more profitable? 

For someone who excels at it, day trading has the potential to be more profitable. Profits compound daily and this can add up for those who are successful day traders. This assumes you win on trades more often than you lose and that you can do this consistently. 

However, someone who is successful as a swing trader can also make substantial profits as well. Though trading occurs less frequently, the size of the positions are generally larger than those involved in day trading. 

Which type of strategy is more profitable will ultimately depend on the skill of the trader trying to execute either strategy. 

Which Is Right for You? 

Which of these strategies is right for you? The answer depends on a number of factors. Note the answer may also be neither one. 

Day trading may be right for you if: 

  • You are comfortable with the stress that comes with day reading.
  • You are able to devote the time needed to successfully conduct day trading. This is typically the equivalent of a full-time job for most day traders.
  • You can afford the potential to lose your entire investment. Also if you can afford to absorb the losses that often occur for new day traders until they gain experience.
  • You have sufficient savings or another source of income to support yourself while you build up your expertise and profitability from day trading.
  • You have access to the technology and trading tools needed to conduct a successful day trading operation. 

Swing trading may be right for you if: 

  • You are looking for a less stressful trading strategy.
  • You are comfortable looking at and tracking trends in stocks and other investment vehicles.
  • You are looking for a trading strategy that does not demand the time commitment of a full-time job.
  • You are looking for a trading strategy that plays out over a longer period of time. 

It may be that neither day trading nor swing trading is right for you. For many investors, their best investing strategy is to focus on the long-term. This means asset allocation and focusing on long-term growth versus daily or short-term trading activities. 

For someone who wants to employ some level of short-term trading in addition to their long-term investing strategy, swing trading might make more sense than day trading.