Day trading and swing trading each have advantages and drawbacks. Compare this with day trading where margins are four times one's capital. From then on, the day trader must depend entirely on his own skill and efforts to generate enough profit to pay the bills and enjoy a decent lifestyle. Swing traders typically use trend following or support and resistance style trading strategies, often supported by fundamental analysis as they are trying to catch larger price movements. This means that almost everyone can rule out full-time day trading as a realistic possibility.
Securities and Exchange Commission SEC points out that "days traders typically suffer financial losses in their first months of trading, and many never graduate to profit-making status. These losses may not only curtail their day trading career, but also put them in substantial debt.
Significant start-up and ongoing costs. In this environment, a day trader has little choice but to spend heavily on a trading platform , charting software, state-of-the-art computers, and the like. Ongoing expenses include costs for obtaining live price quotes and commission expenses that can add up because of the volume of trades. To really make a go at it, a trader must quit his day job and give up his steady monthly paycheck. From then on, the day trader must depend entirely on his own skill and efforts to generate enough profit to pay the bills and enjoy a decent lifestyle.
High stress and risk of burnout. Day trading is stressful because of the need to watch multiple screens to spot trading opportunities, and then act quickly to exploit them.
This has to be done day after day, and the requirement for such a high degree of focus and concentration can often lead to burnout. He can even maintain a separate full-time job as long as he is not checking trading screens all the time at work.
Potential for significant profits. Trades generally need time to work out, and keeping a trade open for a few days or weeks may result in higher profits than trading in and out of the same security multiple times a day. Constant monitoring not required. The swing trader can set stop losses. While there is a risk of a stop being executed at an unfavorable price, it beats the constant monitoring of all open positions that is a feature of day trading.
Less stress and risk of burnout. Swing traders usually have a regular job or other source of income from which they can offset or mitigate trading losses. Expensive investment not required. Swing trading can be done with just one computer and conventional trading tools. It does not require the state-of-the-art technology of day trading. Since swing trading usually involves positions held at least overnight, margin requirements are higher.
Maximum leverage is usually two times one's capital. Compare this with day trading where margins are four times one's capital.
As with any style of trading, swing trading can also result in substantial losses. Because swing traders hold their positions for longer than day traders, they also run the risk of larger losses. Day trading and swing trading each have advantages and drawbacks. Day trading success also requires an advanced understanding of technical trading and charting.
Since day trading is intense and stressful, traders should be able to stay calm and control their emotions under fire.
Swing trading, on the other hand, does not require such a formidable set of traits. Swing traders should also be able to apply a combination of fundamental and technical analysis , rather than technical analysis alone. Day trading and swing trading should both be left to experienced traders who can accept the risks of trading. Swing trading is typically less time intensive and is usually practiced on higher time frames than day trading: One of the major attractions of swing trading is that it can be practiced by checking prices only once every four hours, which many full-time employees can integrate into their work and leisure time.
Obviously, swing trading typically requires far less time and effort than day trading. Swing traders are usually looking larger gains from price movements of between 1.
Swing traders typically use trend following or support and resistance style trading strategies, often supported by fundamental analysis as they are trying to catch larger price movements. A large part of this decision is no real decision at all, because it is determined by economics and time.
Most people need to work full-time to meet their financial obligations and even good traders will report wide fluctuations between their gains and losses over the course of time. This means that almost everyone can rule out full-time day trading as a realistic possibility.
It might be that you have some time, perhaps a couple of hours, which you could dedicate exclusively and intensively to trading every day. Furthermore, you will meet more market opportunities being plugged in once every few hours continuously, then you will by being plugged in for a couple of hours each.
This is just the way the market works. Adam is a Forex trader who has worked within financial markets for over 12 years, including 6 years with Merrill Lynch. Learn more from Adam in his free lessons at FX Academy.