Day Trading Vs Swing Trading: How To Trade Stocks?

Day Trading or Swing Trading Stocks: Which Should You Choose?

At a time when Wall Street is enjoying record profits and investment banking firms are shaping global economies, individuals who are new to the world of equity securities should learn about the trading styles that are more suitable to their investment horizons and personal trading psychology.

Investors who plan to be very active tend to gravitate towards day trading and swing trading, two styles that are highly speculative in terms of approaching the market. Both styles are designed for short-term investing; however, they should not be considered to be schemes to get rich quickly.

Before anyone takes up active trading of securities traded on Wall Street, a certain realization must be made in relation to money management: speculation based on pure sentiment carries a considerable amount of risk. Financial marketplaces such as the New York Stock Exchange and the Nasdaq were not originally designed for short-term trading; however, technology and financial regulations have come to facilitate day trading and swing trading.

The risk that comes with active trading is that investors who trade on margin, meaning that they borrow money from retail brokerages for the purpose of amplifying the positions they take on the market, are widely exposed to margin calls. To this effect, one of the most important rules of investing should always be remembered by active traders: never invest what you cannot afford to lose. What this means is that no one should gamble with their savings or household income; they should be ready to absorb a loss of their investment capital.

Understanding Day Trading

Contrary to popular belief, day trading started long before graphical web browsers and JavaScript. At the London Stock Exchange during the 1980s, floor traders used to take advantage of the 10-day settlement period to trade stocks with clients’ funds before they paid out.

Day trading is normally considered to be the activity of closing out all market positions before the end of the trading session; however, nothing stops day traders from keeping their positions open for a few days if they feel that they can squeeze more profits. In fact, quite a few day traders nowadays choose to watch their positions in after-hours trading or throughout the week.

Although stocks are the preferred financial security chosen by day traders, other instruments such as options, futures and currency can also be traded on an intraday basis. There is no limit as to the amount of positions that day traders can follow during a market session; however, they should not take more positions than they are able to handle with their own analytical minds.

In essence, day traders seek to profit from short-term price fluctuations, and thus they rely on real-time pricing charts to guide their decisions. Positions can be taken based on fundamental or technical analysis; ideally, day traders should incorporate both strategies so that they can act upon signals and reports about the events that may impact their trades.

Understanding Swing Trading

Also known as “range trading,” swing trading is a short-term strategy that involves taking market positions for more than one day. Swing trading has been around longer than day trading, and it is strongly focused on technical analysis and knowledge about the psychology of traders.

Swing trading is far more strategic than simply choosing a high-volume stock and waiting for the price of shares to rise or fall in order to take profits. Swing traders will not enter the market with a position they have not researched, and they do not engage in market timing; they mostly observe certain patterns created by the past behavior of other traders within a certain range.

A classic approach in swing trading is to observe trends that create moving averages. For example, a swing trader may observe that traders are taking short positions on Microsoft after a lackluster quarterly report. Instead on jumping at the opportunity to enter the market with an open sell order to close it out before the bell rings on Wall Street, a swing trader will look at three price points that will allow him or her to enter at a comfortable level and execute with discipline once it has reached the remaining two averages.

In the end, the choice of day trading versus swing trading will be up to each individual investor; however, it is important to remember that we live in an era when a single Twitter update posted by a President can drastically move intraday share prices and affect day trader and swing traders alike. The key is to always improve on money management, analysis and trading discipline.

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