Day Trading vs Swing Trading - Which one is better and why? - (2024)

The ways of making money in trading are pretty much endless.

In general, traders separate into two groups, day traders and swing traders.

Often you will find out a lot of heated discussions on which approach is better and why.

This is what we will look at in this article as we discuss the pros and cons of both day trading vs swing trading and I will show you some actionable strategies that you can implement in your trading.

Even though I focus predominately on day-trading, I have a swing strategy to capture larger market moves.

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Table of Contents

“Lower timeframes are noise, just stick to the bigger picture.”

I am sure this is something you have heard before.

Swing trading is often portrayed as something you can do from anywhere in the world, spending just a few hours a day looking at the charts and living your dream life.

More often than not you hear this from people who are more than happy to share with you all their tricks in their thousand dollar trading courses or guide you in the VIP signal group for only $99 a month.

But it is true?

Can you really approach trading from the point where you sit in front of the chart for let’s say one hour a day in the morning, throw out some limit orders or alerts and live your life?

Answer to this is little more complicated than simple yes or no.

Although swing trading can be profitable, it is much more complicated than having a simple “set and forget” approach.

Before we go more in-depth to swing trading, we should define what even categorize as a swing trade.

In my eyes, swing trade is any trade that is held overnight.

It is simply because holding trade overnight brings different responsibilities that differ based on a market you trade.

If you trade Forex, you have to pay (or receive) swap.

In futures, you need an additional margin for an overnight position.

In cryptocurrency futures, might start to factor in costs for funding etc.

Problems With Swing Trading

As of writing, this article (February 2021) markets are going wild.

The cryptocurrencies, which are right in the middle of the boom after long three years of bear markets and stocks or commodity and index futures, experience some very volatile long-term swings.

Even though this can bring life-changing returns, it is one of the most dangerous environments for newer traders to step-in.

Buying something which will bring 100% returns in a matter of a few days, sometimes hours can easily give you a feeling of being a younger version of Warren Buffet and seeing yourself on the cover of new Market Wizards.

And although these types of market environments produce many new wealthy traders, the vast majority will end up giving back all their unrealized profits and losing everything.

Risk Management

If you want trading to become your living and not gamble with your future, you need solid risk management.

The general belief is to risk anything between 1-3% per trade.

This is good advice, and it is something I follow myself.

But I am day trading; I rarely have more than one position open simultaneously.

So if the trade goes against me and I get stopped out, I lose that 1 or 2% from my capital and move on.

It does not matter if you chose to trade crypto, stocks, forex or futures.

You will soon realize that markets are heavily correlated.

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This correlation can highly increase your risk without you even knowing it.

If you, for example, enter long on 20 different altcoins with 3% risk and the market will all of a sudden decides to crash as it did a few years ago a large amount of your account can suddenly vanish because you pretty much made one directional bet on the rising altcoin market.

This is the 100% same as for a Forex trader who goes long on EUR/USD, GBP/USD, AUD/USD and NZD/USD simultaneously without realizing that one bullish Dollar headline can ruin your account.

How to deal with this?

The easiest way is to hedge on your bets.

All you have to do is fully understand how correlations in your market work and find a proper hedging instrument.

If you want to find out more about correlations, for Cryptocurrencies you can use this correlation table by Cryptowatch.

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For trading legacy markets, there is a similar table made by Moore Research Center.

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Ability To Predict The Future

Trading is not so different from regular life.

Do you know what you will be doing in the next 10 minutes? I’m sure you do.

Next 2 or 5 hours? Answer to this is still pretty sure.

But how about one week or one month from now?

I don’t know how about you, but I don’t know that.

I have an idea, but I wouldn’t bet money on that.

Trading is more so the same.

As the retail traders, we are always last to get new information; therefore, predicting market movements weeks/months is an extremely challenging task.

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Bitcoin is trading almost at $50,000. Still, one year ago, after the market crash to $5000 area, the general sentiment was very bearish with the most scenarios pointing at a retest of newly made resistance and continuation lower.

If you told anyone that Bitcoin would break its prior ATH at $20,000 by the end of the year, very few people would believe you.

Sample Size

If you don’t have several years of experience under your belt, testing a new strategy can get a little bit complicated if you are swing trading.

Taking the only a handful of trades every week will take significant time to build sample size large enough to back your ideas with more serious capital.

Those that are day trading and participate in the market almost every day will get almost immediate feedback on how they are doing.

On the other hand, fixing this issue is not so complicated.

All you have to do is run backtest on your strategy throughout various markets.

The only thing important while backtesting is being honest with yourself and not trying to adjust results

Market Cycles

Markets don’t go up or down in one straight line.

This is well represented in the Wyckoff price cycle.

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In a trending environment, swing trading might be a piece of cake, but once markets turn into the accumulation/distribution phase things can get much more complicated.

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During these three months of consolidation in Bitcoin, executing any long term position was not easy.

Of course, this can be easily solved by moving to another market, but some traders prefer to have a narrow focus.

Although you might think its bad, I am a firm believer than trading one instrument and knowing every nuance it has, and its specific behaviour is much more powerful than trying to trade 20 different things at once.

Market Exposure

Once you start trading with larger capital, you quickly realize that holding positions overnight or over the weekend is not easy.

Not only that you will be glued to your platform or mobile watching your unrealized PnL, which can lead to disrupted sleep and general mood swings.

But you will also expose yourself to unexpected market events.

If you are trading cryptocurrencies opened 24/7, this might not be such a big deal since your stop will always be executed around the same place you put it.

In traditional markets, you have to be prepared for much worse scenarios.

If you have entered a short position on a Crude Oil on Friday 13th September 2019, you probably had one of the worst weekends of your life.

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On Saturday, September 14th 2019, drones were used to attack the Saudi Aramco oil processing facilities at Abqaiq.

Without going into many details, this caused 11% gap higher after the market opened again on Monday.

If you were short at this time the slippage you could experience might have been account ruining.

Of course, this is a more extreme example, but weekend gaps are nothing new, and they present big additional trading to your trading account.

So is swing trading all just doom and gloom? Of course not.

But before I show you how I believe is the best to approach swing trading, we should compare it with other trading approaches.

Swing Trading vs Investing

There is a very thin line between swing trading and value investing; it is emotions.

If you come to Crypto Twitter or Wallstreetbets starting to make calls that crypto/stocks are about to crash, you are getting eaten alive.

The “up-only” (or for some bears “down-only” sentiment) is what differs traders from investors.

The more emotional people are about their trades, harder is to convince them about something or even present them with a different opinion.

If you want to be a trader and have any trading career that will last you for years to come, you have to get rid of any emotional attachment towards assets you are trading.

I am a big Bitcoin fan, I love trading it with all the different benefits it brings me (this might be a topic for another time), but If my system tells me that there is a great likelihood of large downside correction, I will short it without a blink of an eye.

If you truly believe in an asset to the point that you want to be the only buyer of it, there is nothing wrong with that.

In that case, you probably don’t even need to spend your time in front of charts, all you have to do is start with slow dollar-cost averaging and maybe take a look at some very high timeframes here and there.

Using Orderflow With Swing Trading

Although orderflow trading is often talked only with day trading, there are still some strategies which you can use as a swing trader.

Watching the time and sales or DOM might be outside your capabilities but look at higher timeframe footprint charts or watching the relationship between aggressive and passive participants at key levels can bring you a great value.

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Above you can see an H1 chart of Bitcoin.

Yellow level on the chart represents a prior resistance that turned support now.

If for any reason you are in doubt and down want to bid this level blindly, the cumulative volume delta would be a great use.

This is one of the prime examples of absorption where aggressive market participants tried to push prices lower but were unable to do so.

This is a good indication of a long opportunity.

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Footprint chart is also valuable not only on a small, fast move.

As you might notice above, there is a Key S/R which market-tested on the right side of the chart.

If this is level, you are interested in buying but want to see reaction first, seeing the interaction at the level can be game-changing.

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As this H1 footprint shows us, sellers were rushing to the level on -69M delta, but the minute we hit the level selling stopped and the largest sellers got stuck in the wick of a candle.

This quick trap can be used as a long entry with a high probability of upside reaction.

As you can see, having access to these more advanced tools can be a huge help, not only for day-traders.

More about this and my step-by-step trading strategy is covered in the Trading Blueprint.

Market Profile and Swing Trading

Although you might not benefit from using a Market profile for each trading day, you can still benefit from using monthly or weekly market profile.

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January 2021 was more of a ranging month in Bitcoin.

This balance between buyers and sellers oftentimes does not provide the best swing trading opportunities, so only thing swing traders can do is wait for a breakout of the balance.

One of the best tools you can use for this is Market Profile.

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The highlighted area represents a Value Area of January.

Once the new month started, we could use this Value area as our trading range and bet on breakout outside of it for a trend continuation.

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Going back to the H4 chart, you can see how we broke out outside of prior month Value and started a rally after the retest.

Another easy to use levels you can get from Market profile (or volume profile) are naked Volume Points of control.

These are easy to see on any type of profile and get the reaction of them very often.

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This naked Volume Point of Control was created on the first week of January, once market-tested it one month later, we could see a reaction from it.

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Although the market eventually continued to the upside, the reaction from nVPOC took the market down for 2 days, and this is more than enough for solid intra-week trade.

Best Swing Trading Indicators and Strategies

One thing that many technical traders completely disregard is fundamental analysis.

However, markets are always moving based on fundamentals on a larger scale.

Understanding what risk-on/risk-off sentiment is, looking at the commitment of traders reports, understanding a fundamental background of the chart you are looking at either it is a commodity, stock, cryptocurrency or foreign currency will always be helpful.

Especially for swing traders that monitor 10 or 20 instruments at once.

Besides that, you don’t need to make your life complicated.

Understanding what type of market cycle you are currently in is crucial.

In trending markets, you can combine classical indicators with price action basics, and you are often good to go.

In accumulation/distribution you either use a variety of mean-reverting strategies such as standard deviations from moving averages, vwaps etc.. You try to position yourself for a bigger breakout.

Looking at H4 Bitcoin chart (which is a part of Templates bundle) from January and February, there is a monthly VWAP with standard deviation bands.

When these bands have a straight direction, we can use their extremes for mean reversion like it was possible in January.

Once the market starts trending and bands point into the up or down direction, capturing a trend move is a wiser approach.

Adding some price action concepts to this and you have a solid swing trading strategy.

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If you are interested in my process and how I map out higher timeframe levels, make sure to check out the Trading Blueprint.

Options Trading

If you are looking to be a swing trader, consider learning options.

Options can be traded in any market of your choice, so it does not matter if you want to trade Cryptocurrencies, Futures or Stocks, the options market is popular for all of them.

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So why to trade options? Because of their flexibility.

You can build different options strategies for any type of market environment, which gives you a possibility to profit even when markets are not moving, and you are not able to capture any bigger swings in price.

Even if you decide only to buy call and puts, paying a premium instead of having a hard stop in the market can often time save you from getting shaken out before the anticipated move.

Options are quite a complex topic, and it might be covered here in future blog posts.

If you are interested in learning options, there is no better way to start than with classic from Sheldon Natenberg, Option Volatility & Pricing.

How to Maximize Swing Trading Profits

I’m sure that after reading this part about swing trading you know now that even swing trading is something that requires actual work and looking at the chart on your phone for 10 minutes every day won’t be enough.

The most important thing when you are executing your trades is your Risk to Reward ratio.

When you are swing trading, your stop-losses are usually pretty wide, so to make 1,2 or 3R on trade, the market has to move a decent amount.

This approach, requires little more skills and also a time, but I do use this in my trading and the biggest trades I have ever taken come from this approach.

The trick is on executing trades on lower timeframes once market hit your higher time frame level.

This can be anything from weekly, daily, H4 support and resistance level but also long-term VWAP, moving average etc.

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Looking at 6E chart above (the equivalent of spot FX EUR/USD), you might get into the swing long position based on this resistance turned support on a daily timeframe.

Because you are placing a bid as the market is approaching this level, your stop loss must be a little bit wider.

Those traders who do not have time to monitor charts often due to work and would enter trade like this would be sitting at around 2R profit, which is great.

But if you have a little bit of time on your hands, you can go into the lower timeframes and enter the trade on the confirmation with tighter stop.

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After the initial reaction from the daily S/R, you could go to the H1 time frame and wait for a break in market structure and reacceptance into the prior day value area.

This would result in sitting in 8R trade instead of 2R.

Even if you would be much more careful and wait for a reclaim of monthly VWAP and enter after that, it is still 4R trade.

Although this looks amazing, do not get too excited.

With a smaller stop loss, you are more likely to get taken out if the market won’t give you the immediate reaction.

Besides that, more chart time is required as you need to pay much more attention to your entry.

But from risk: reward perspective, you will be able to capture great trades with substantially higher position size, which will bring higher rewards.

If you are holding trades for few minutes or few hours within one trading day, for focus lies in day trading.

Day trading solves quite many swing trading problems such as long term market exposure or ability to predict the future weeks or month in advance.

These two mentioned are the main reasons I prefer to day trade myself, but it is all piece of cake? Not really.

If you are new to trading, there is a much higher likelihood you will blow your account while day trading.

So as same with a swing trading lets have a look at some common day trading problems.

Problems with Day Trading

Although lower timeframes are quite far from being “noise”, it is quite easy to get lost in it.

Especially if you don’t know what you are doing.

Because things can get very fast very quickly, many traders end up panicking,, which will result in not following a risk management, revenge trading, and other disasters.

Risk Management

If you are swing trading and average around 3-5 trades per week, ,you won’t be able to cause yourself too much damage with proper risk management.

If you lose 3 trades in a row with 2% risk, you end up down 6% on a week.

Obviously, this is not great but can quickly be made back.

But if you take 3-5 trades per day, things can go bad quickly.

Being down 6% on a day can cause some psychological damage coming into the new trading day.

This is why you have to be much more strict and disciplined when it comes to day trading.

An easy solution to this is to risk a lower percentage of your account on each trade.

Staying within 0.5-1.5% risk per trade will keep you away from bigger drawdowns.

The downside of this is account size.

If you want to make any money that will make trading and sitting 12 hours a day in front of a chart worth your time, the bare minimum you need in your account is $10,000.

And even that is too low for 0.5 or 1% risk per trade.

Although turning $1000 into $100,000 is often heavily advertised on the internet, you need to be more real with yourself.

Hitting a 10% account gain in one month is not unrealistic, but would you live off of that with $10,000 account? Probably not.

This is why many traders take two or five thousand dollars and try to day trade with that risking 5-10% per one trade; this is just a recipe for disaster.

Being trigger happy

Common perception day-trading is that you can jump to the market for a few hours any time you want and find new plenty of opportunities day in day out.

This is far from the truth as you need to trade during the times of high volumes to capture any reasonable moves.

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The chart above represents most liquid hours in trading Bitcoin futures.

This is generally where you will find out the best trading opportunities during the day.

If you are a legacy futures trader, you should follow the RTH (regular trading hours) of the instrument of your choice.

I have recently published an article about the best futures market to trade.

That article contains times of regular trading hours (cash hours) of different markets.

Being able to trade around the periods of highest volume will save you a lot of headaches as you will more likely to find a good trade setup instead of just watching market doing nothing.

Cautious approach

When you are swing trading, you place your trade and can pretty much go on with your life, at least for several hours.

Things are different in day trading.

As you are using much tighter stop-loss, you sometimes get taken out in the process.

This oftentimes discourages a lot of traders as they just lost the money and are too scared to enter again.

The truth is that even if you just got stopped out does not mean your trading idea is no longer valid.

Being able to quickly shake out the realized loss and jump back into the trade is not an easy skill acquire, but it needed one.

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As you can see, shorting the gap fill in the Bund might not have worked out on the first attempt after entering on close of rejection candle.

This would demotivate many traders, but the truth of day trading is that you need to be able to jump back in without any doubt if you see the signs.

That happened a few minutes later, and you could get short aiming for a new low of a day for great profits.

Not believing in your own strategy

If you execute a large sample size of trades with not the best outcome, you immediately start to doubt yourself.

Many traders don’t realize that they just might hit unfavourable market conditions during one trading week.

At the end of the day, markets are random.

You never know what the exact reasoning behind the given movement was, you are just playing long term probabilities which are leaning slightly in your favour.

If you start doubting your strategy and performance, this is not an instant reason to start changing things.

Take a step back, backtest things but don’t go searching new holy grail because it doesn’t exist, you just had a rough week in the markets.

Event risk

Swing traders are usually using larger stop-losses with smaller position sizes relative to their accounts.

But those that day trade can get into positions with extremely tight stop-losses and large position size.

This is of course great as it can bring huge gains to your trading account rather quickly, but if you end up being on the other side of high impact news, you are in a big trouble.

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If you were for any reason shorting right before news about Tesla buying $1.5 billion in Bitcoin coming out.

You could end up slipped out so bad it could liquidate your whole account.

This is simply because traders and algorithms usually pull their orders from orderbooks during the high impact news and this results in possibility of high slippage to those who cannout find counterparty all of a sudden.

This can happen to swing traders as well, but damage is rarely that bad thanks to already mentioned lower position sizes and wider stop losses.

Using Orderflow in Day Trading

Orderflow trading is tightly connected with day trading.

Although some traders prefer to focus only on price action and indicators, orderflow can provide a massive help to your trading strategy.

It is solely up to you if you decide to watch DOM, Time and Sales, Footprint charts or cumulative delta.

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Although all these orderflow indicators work little bit different, they should serve same purpose.

The ability to see “inside” the market and being able to identify stop runs, absorptions or exhaustion early on.

These are simply things you cannot see using simple candlestick chart.

You often times see traders calling stop runs and posting candlestick charts related to those stop runs.

Truth is that this is just a wild guess, but if you use something like footprint chart, you can be much more certain about what is going on.

Market Profile and Day Trading

Another extremely useful tool in daytrading is market profile.

Although a lot of traders think it is some sort of indicator, market profile was not created to give you any trading signals.

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Purpose of the market profile is to organize data.

This way you will be able to easily navigate over the previous days, mark out important levels for potential execution and spot all anomalies on chart.

The value areas and point of control from prior days always act as important pivots and if you understand the auction market theory dynamics you can easily find plenty of trading opportunities.

But there is much more to the market profile and it is up to you how much you will incorporate into your strategy.

You can learn more about market profile in this article.

Best Day Trading Indicators and Strategies

Even though ordeflow and market profile can look scary at first, there is no reason to overcomplicate things.

Especially in day trading where you have to make time limited decisions there is no reason to clutter your charts with to much information.

One of the key things is to determine the type of environment you are currently in.

This is not an easy task and things can change very quickly in markets, but there is nothing worst than trying to catch big move in ranging market.

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As you can see some very easy to use indicator like VWAP with standard deviation bands can help us determine on what type of day we can expect.

On the first day market could not sustain momentum so we could use more of a mean-reversion approach rather than trying to catch trending move which came day later.

It is up to you what type of tool you will use for this analysis but is is crucial to recognize where you currently are.

Market profile is one of the best to analyze market conditions.

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As you can see market spend first day inside the composite value area where you could fade the edges.

And on second day, once it broke out you could find a great long entry.

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You can see how these Value area levels lined out the support and resistance clearly seen on a price chart.

Once you sort out your strategy, it is all about risk.

Day trading can be fast and overwhelming at the times, bare in mind that your job as a trade is to show up for the next day, so protecting your capital is key.

So now as we conclude the whole article, question is which one is better?

It is better to swing trade or day trade?

Truth be told, there is no on best approach to trading.

Everything have their pros and cons.

If you decide to swing trade, you might spend less time looking at chart but you are constantly exposed to the market which brings increased risk and in general it is harder to predict far to the future.

Day traders might have odds on their side with easier predictability of near future and getting more opportunities in the market day in, day out.

On the other hand, managing risk as daytrader is hard and even a small mistake can cost you a lot.

At the end of the day, it is up to you to decide what type of trader you want to be and what suits your lifestyle either if its swing trading or day trading.

As a seasoned trading enthusiast with a deep understanding of various trading methodologies, including day trading and swing trading, I can provide valuable insights into the strategies and concepts mentioned in the article you've shared.

Swing Trading:

Swing trading involves holding trades overnight, capturing larger market moves. It requires meticulous risk management due to overnight market exposure and the need to predict market movements over longer periods.

Problems With Swing Trading:

  • Risk Management: Swing traders must manage overnight exposure and potential gaps in the market, which can lead to significant losses if not carefully controlled.
  • Ability to Predict the Future: Predicting market movements over longer timeframes is challenging due to limited visibility into future market conditions.
  • Sample Size: Building a substantial sample size for strategy testing takes time due to the lower frequency of trades in swing trading.
  • Market Cycles: Market cycles can affect swing trading profitability, especially during consolidation phases.
  • Market Exposure: Holding positions overnight exposes traders to unexpected events and gaps in the market.

Using Orderflow With Swing Trading:

While orderflow analysis is commonly associated with day trading, it can still provide valuable insights for swing traders, especially when analyzing higher timeframe footprint charts or observing the behavior of aggressive and passive participants at key levels.

Market Profile and Swing Trading:

Although swing traders may not benefit from intraday market profile analysis, utilizing monthly or weekly market profiles can aid in identifying trading ranges and breakout opportunities.

Best Swing Trading Indicators and Strategies:

Swing traders can benefit from a combination of technical indicators, such as VWAP with standard deviation bands, and fundamental analysis to gauge market sentiment and identify potential trade setups.

Options Trading:

Swing traders can explore options trading for its flexibility in various market conditions, allowing them to profit even when markets are not moving significantly.

How to Maximize Swing Trading Profits:

Swing traders can maximize profits by maintaining a favorable risk-to-reward ratio, executing trades based on higher timeframe levels, and utilizing options strategies for added flexibility.

Day Trading:

Day trading involves executing trades within the same trading day, often focusing on shorter timeframes and capitalizing on intraday market movements.

Problems with Day Trading:

  • Risk Management: Day traders must be disciplined in managing risk due to the higher frequency of trades and potential for rapid account drawdowns.
  • Being Trigger Happy: Trading during periods of high volume is crucial for day traders to capitalize on market opportunities.
  • Cautious Approach: Day traders must overcome the fear of re-entering trades after being stopped out and remain vigilant for potential setups.
  • Not Believing in Your Own Strategy: Day traders may doubt their strategies after a series of losses, but consistency and adherence to a proven strategy are key to long-term success.
  • Event Risk: Day traders are exposed to event risk, such as high-impact news releases, which can result in significant slippage and account losses.

Using Orderflow in Day Trading:

Orderflow analysis is essential for day trading, providing insights into market dynamics, stop runs, and potential trade setups.

Market Profile and Day Trading:

Market profile analysis is valuable for day traders to identify important levels, trading ranges, and anomalies, aiding in trade execution and risk management.

Best Day Trading Indicators and Strategies:

Day traders can benefit from simple yet effective indicators like VWAP and market profile analysis to determine market conditions and optimize trade entries.

In conclusion, both swing trading and day trading have their pros and cons, and the choice between them depends on individual preferences, risk tolerance, and trading style. Whether one chooses to swing trade or day trade, disciplined risk management, thorough analysis, and consistent execution are essential for long-term success in trading.

Day Trading vs Swing Trading - Which one is better and why? - (2024)
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