Quick Definition
Day Trade: A trade where you open and close a position within the same day.
Swing Trade: A trade where you open position that will be closed the next day or few days later. A swing trade can be held for days, weeks or even months.
Overview
Day and swing trading are both two different trading styles. Each style requires a good understanding of the technicalities and the market. The main difference lies on the time span you study and evaluate the asset. A day trader focuses on reading the chart on a day to day basis using 1 minute, 3 minutes, 5 minutes, 15 minutes, and to in certain cases the 1 hour candlesticks. A swing trader focuses the 1 hour, 4 hours, day, and weekly candlesticks. In other words, what is considered to be a good deal of the day for day traders might not be so for swing traders when taking into considered the past and upcoming weeks.
One style of trading is not better than the other one. It is about finding what you prefer and what you find yourself more comfortable doing. You can also do both day and swing trades. The following concepts will be analyzed on a day trader’s point of view versus a swing trader’s point of view: reading charts, mindset and finding good deals.
Day Trading Vs Swing Trade (Key elements)
Same day positions Positions held for more than a day
Time Consuming (Similar to day job) Time Saving (Similar to part time job)
Stressful Less stressful than Day Trading
Chart candles are 1 minute to 1 hour Chart candles are 4 hours to weekly
Reading Charts
Day Trader
Day traders will mostly read and analyze the chart using 1 minute, 3 minutes, 5 minutes, 15 minutes, and 1 hour candlestick charts. Theses time frames are preferable to see detailed movements of the stock price within a day. They allow traders to study previous resistance & support level in these time frames. Using indicators on a smaller time frame is a key element in finding most advantageous entry and exit points. In addition, learning Level 2 data will give a great edge on day trading. Level 2 data is a great way to see pending orders made at present time.
Swing Trader
Swing traders will mostly read and analyze the chart using 1 hour, 4 hours, day, and weekly candlestick charts. Theses time frames are preferable to evaluate great entry and exit point for positions held over multiple days. A swing trader can also use lower time frames to analyze good entry point within the day as well as when they will sell their position, but it should not bother much if it is a swing trade over weeks time span. Finding resistance and support level as well as indicators on a 4 hours or daily candlestick chart is important for swing trades. In this style of trading, level 2 data is not essential.
Mindset
Day Trader
The mindset of a day trader should be to be prepared to attack the day by taking advantage of daily price actions. This implies being prepared and planning prior to the opening of the market. You should follow your plan and your rules without letting emotions get in. If you have a losing trade, have a stop loss to cut losses at a minimum. If you have a winning trade, take profits at some levels that are predetermined the moment you entered the trade.
Being well prepared and following your plan is very important to be a successful trader over time. The key for being successful is not to make one lucky trade, but to have consistent green days.
Swing Trader
The mindset of a swing trader should be to find, evaluate and be confident about a swing trade that is well planned ahead. Being a swing trader requires a lot more patience because not every day are good days to enter a trade for a given stock; there are bad days too. Waiting for a stock to meet your requirements of an entry position is key for a swing trade. Having a predetermined plan of your stop loss and profit taking for a trade are also very important.
Swing trade should have a stop loss, but it should not be as strict as for day trade. In other words, if the stock you bought met all of your requirements for a swing trade of 2 weeks duration and the next day the stock is lower, that should not bother you. If your plan is still strong, you should average down to lower your entry cost. At the same time, if you are not sure of what you are doing, it is better to cut your losses.
Finding good deals
Day Trader
A good deal for day trader is any entry point that allows a shift in momentum to the upside after retracing on a smaller time chart. This can be, for example, a stock that retraces back to the support line without break it and that is oversold on the 1 minute chart. You can try to ride the upside from that shift of direction towards the next resistance while having a stop loss. Another good entry can be when the stock breaks a strong resistance level and pushes to the upside.
Note that the inverse of theses methods can be applied to the downside when shorting a stock.
Swing Trader
Just like in day trading, a good deal is any entry that allows a shift in moment to the upside after retracing to lower level on a daily chart. A good entry point can be when a stock retraces to an old support level and that the price action is oversold on the daily chart.
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