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Pros and Cons of Day Trading vs. Swing Trading

Posted by TopstepTrader on October 13, 2019

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How long do you plan to hold your position? This is one the fundamental questions a trader needs to ask before diving into the markets. If you're a short-term trader, the temptation to cling to a position long after the signals change is strong. That devil on your shoulder assures you that this is all going to work out—just let it ride!

Congratulations! You have now become an unintentional swing trader. There's nothing inherently wrong with this, but it's important to know the differences between trading in the short term (day trading) versus trading in the medium-to-long term (swing trading). Neither strategy is objectively better; however, both have a number of pros and cons that we will explain below.


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See those two colored buttons above asking you to start trading futures or forex? These are known as "calls to action" in the marketing business ("CTAs" if you want to sound real slick). The reason that you are seeing these particular buttons, is because you are reading a blog run by TopstepTrader, and for the most part, we are in the business of funding day traders.

In the spirit of full disclosure, this seemed like something worth mentioning before breaking down the advantages and disadvantages of day trading (something that makes up the vast majority of our business) versus swing trading, which makes up a very small (but hopefully growing) piece of the pie. 

So, hopefully none of this comes off as biased one way or the other. But if something doesn't square up, please feel free to let us know in the comments.

And with all of that unpleasantness out of the way... let's do this thing!

Day Trading

According to the good folks at Investopedia:

"A day trader is a trader who executes a large volume of short and long trades to capitalize on intraday market price action. The price action is a result of temporary supply and demand inefficiencies caused due to purchases and sales of the asset."

Right there is a lot of words to explain something you probably already knew. In our futures Trading Combine at Topstep, we encourage traders to be flat all positions at the end of each trading day. Therefore, by definition most of our traders employ day trading strategies. 

There are a million different ways and styles to take advantage of short-term, intraday price movements, but they all benefit from some of the same features, and suffer from some of the same constraints.

The "Pros" of Day Trading:

  • You can always get out of a position. By not holding active positions when the markets are closed, you will save yourself a lot of headaches. On a long enough timeframe, anything and everything will happen, and you might be the person left holding the bag on a huge gap open. This might work to your advantage, but generally, we should not be in the business of trading coin flips. That's just gambling. 
  • Lower margin requirements. Because day trading removes this element of overnight and weekend risk, you will enjoy lower margin requirements for the products you trade.
  • Practice makes perfect. Many point out that one of the benefits of swing trading is that you don't have to be chained to your trading desk all day—fair enough. However, this benefit cuts both ways. There is no better teacher than the markets, and no better way to learn trading than to watch your screens for countless hours. It doesn't matter if you're learning to play the piano or trade oil—there's really no substitute for putting in the time. 

The "Cons" of Day Trading: 

  • You can be forced to close positions before they have the chance to work out. This is probably the most frustrating part of trading with a deadline. Sometimes, the market slows down, and suddenly it's a race against time. You made a good entry, but now you have to puke the position for a loss. This is an even tougher pill to swallow if the trade immediately works out at the beginning of the next session. But such is life. 
  • You will pay more in commissions. This is a pretty straightforward disadvantage of day trading. You make many more trades than a swing trader, and alas, this means that you give away more of those dreaded commissions. The brokerages will love you though. 
  • There may be a temptation to force trades. Every trader has probably done this. The markets are slow. You've been sitting there for hours waiting for confirmation signals that never come. So you decide to put on one contract. What's the worst that could happen? Things go a little south, so you put on another. Suddenly you're defending a trade that's a concerning number of dollars in the red. Worst of all, you can't even remember why you were in this trade to begin with. You know that you shouldn't make a trade unless the conditions are right. But it's also incredibly hard to sit on your hands the whole day. Mental discipline is a tough skill to perfect. 

Swing Trading

Swing trading is simply the practice of buying and selling selling securities with the goal of holding, and ideally profiting, in the medium time frame. Usually, this means a few days to a few weeks. If you stay in a position any longer than that, it pretty much makes you an investor, speculator or Bitcoin dreamer (just kidding). 

At Topstep, we are just getting into swing trading with our CME Micros Trading Combine (in which you can hold trades indefinitely), and to some extent with our TopstepFX program which allows traders to hold positions 24-hours-per-day Monday through Friday (since the spot forex markets don't close daily like futures).

Here are some things to keep in mind should you decide to become a swing trader. 

The "Pros" of Swing Trading:

  • You don't have to be glued to the screens all day to be successful. Burnout is a huge issue in trading, especially among day traders, who often spend a substantial portion of the day fixated on charts and minute-to-minute price action. Swing traders use many of the same technical analysis techniques, but also enjoy the luxury of being able to let positions ride while they work an outside job or go out to get groceries. 
  • You don't have to sweat the small stuff. Swing traders generally look for much larger moves compared to their day trading brethren. So they need not worry about a sudden 10-point move in the S&P futures that might give a day trader heart palpitations.  
  • You will pay less in commissions. Of course, right? If you trade bigger moves using fewer contracts, you'll obviously save money on commissions. 

The "Cons" of Swing Trading: 

  • Exposure to overnight and weekend risk. Not to be dramatic, but nothing, NOTHING is worse in trading than being stuck in a position you cannot get out of. If you're holding  something when the markets are closed, that's a game of Russian roulette that you are just going to have to play. Giant gapped markets can and will happen. This is part of the reason  margin requirements are higher for positions held overnight. 
  • Losing trades can be far more painful. Swing traders generally enter far fewer trades than day traders and risk a much larger percentage of their accounts on each trade. This means there is less of an opportunity for the law of averages to kick in and counteract bad trades. An unlucky string of big swing trading losses can erode your trading capital pretty darn quick. Case in point, it's usually not the day traders who lose billions of dollars or bankrupt large financial institutions. 
  • Market conditions are more likely to change during holding period. If you hold a trade for two weeks, a lot more BS can happen than if you hold it for two minutes. Especially since we live in a world where one Tweet can crash the markets and a few drones can start a major geopolitical crisis. 

At the end of the day...

There are numerous advantages and disadvantages to actively trading an account in general. But you already know the biggest: trading can offer huge rewards but also devastating losses. Whether you're a day trader or swing trader, you need to be able to quantify your risk and respect it.

If none of this has scared you off, you can learn more about basic trading strategies by checking out our 5-part series on how to "Stop Losing Money in the Markets." And if you're interested in swing trading opportunities, here's a link to our new CME Micros Trading Combine. 

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Topics: Trading Basics, Futures, trading strategy

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