There is no key difference in the execution style between Day Trading and Swing Trading, you would execute trades the same way; watch the charts, determine where you want to execute the trade, put SL and TP in place and it’s all set. However, the main difference lies in a few other aspects which are similarly important as execution. For example; the frequency of the trades taken, your account size, how much risk you are willing to take, and also time.
If we talk about frequency, in Day Trading you are going to see anywhere between a single to several trades opened and closed within the same day. Contrary to that, in Swing Trading trades are taken over a monthly, or weekly period and held for a long time. While Swing Trading may offer fewer opportunities to execute trades, it also has its fair share of perks. There are fewer risks involved, you have the opportunity to track the movements of the market and make decisions accordingly. In Day Trading, however, there are more opportunities and also more risk involved. Since you are executing trades more, there is also a higher commission fee as well. But, if you are consistent enough, you can make 200% per year without even compounding while Swing Traders make 30% to 50% per year at best. Great power comes with great responsibilities, this is more true when it comes to Day Trading.
All the jokes apart, both of them have their pros and cons but, you just can’t blindly decide what form of trading style you will pursue. Your account size is the indicator that tells you what to pursue, if you don’t you would probably be doomed.
With smaller accounts, you wouldn’t probably make much executing swing trades. Time also has value, and swing trading was designed keeping big accounts in mind. Because a swing trader will get a detailed view and can diversify the risk with multiple open positions from various points of the market. This method greatly reduces the risks while providing enough opportunities to maximize profits.
This was a basic introduction to Swing Trading and Day Trading. Now, let’s dive a little deeper into the topic.
What is Day Trading?
Day trading involves making multiple trades within a single trading day, with the goal of taking advantage of short-term price movements. Day traders typically open and close their positions within the same day, and they may make several trades within a single day. They rely on real-time data and technical analysis to make informed decisions about when to buy and sell currencies.
One of the main advantages of day trading is that it allows traders to take advantage of small price movements that may not be noticeable over longer time frames. For example, a currency pair may only fluctuate by a few pips in a single day, but a day trader can still profit from these small movements by making multiple trades. Additionally, day traders have the ability to react quickly to news and market events, which can also lead to profitable trades.
However, day trading is not without its risks. Because positions are opened and closed within a single day, day traders are exposed to greater levels of volatility and may be more prone to emotional decision-making. Additionally, day traders may be more susceptible to news-based events, such as economic releases or political developments, that can cause significant price movements in a short period of time. As a result, day traders need to have a high level of discipline and risk management in order to be successful.
What is Swing Trading?
Swing trading involves holding positions for a period of weeks or months, with the goal of taking advantage of medium-term price movements. Swing traders typically hold their positions for several days, weeks, or even months, and they may make several trades within this time frame. They may also use a combination of technical and fundamental analysis to make informed decisions about when to buy and sell currencies.
One of the main advantages of swing trading is that it allows traders to potentially profit from both long-term and short-term price movements. By holding positions for a longer period of time, swing traders may be able to capture larger price movements that may not be visible on a shorter time frame. Additionally, because swing traders are not required to monitor the market as closely as day traders, they may have more time to research and analyze potential trades.
However, swing trading also has its risks. Because positions are held for a longer period of time, swing traders are exposed to greater levels of volatility and may be more susceptible to market events that can cause significant price movements. Additionally, swing traders may miss out on potential profits if a currency pair moves significantly in a short period of time. As a result, swing traders need to have a good understanding of market trends and be able to accurately predict the direction of price movements in order to be successful.
Which Trading Style Is Best For Trading With Prop Firms?
There are several factors that traders and forex prop firms may want to consider when deciding between day trading and swing trading:
Day trading exposes traders to greater levels of volatility and risk, as positions are opened and closed within a single day. Swing trading, on the other hand, involves holding positions for a longer period of time and may be more suitable for traders with account balances lower than 100K.
Day trading may be more focused on short-term profits and may be more suitable for traders with a shorter-term trading horizon, if a trader is in one of their evaluation phases it’s better to go with the Day Trading style cause there is a time cap in the most evaluation phases. As swing traders are more focused on longer-term profits so it is most suitable for traders that are in their live account, managing real funds.
Day trading requires a high level of time commitment, as traders need to constantly monitor the market and make multiple trades within a single day. Swing trading may require less time commitment, as traders do not need to monitor the market as closely and can hold positions for several days or even weeks.
Day trading may be more suitable for traders who use high-frequency or algorithmic trading strategies, as they can take advantage of small price movements and make multiple trades within a single day. Swing trading may be more suitable for traders who use a combination of technical and fundamental analysis.
Day trading may be more suitable for traders who are comfortable with the fast-paced nature of the forex market and have a high level of risk tolerance. For example, if you had experience trading indices then you would most probably have a hard time adjusting to the comparatively slower pace of swing trading and trading in higher time frames in general. Swing trading may be more suitable for traders who prefer a more measured approach and are comfortable with a longer-term trading horizon.
There is no exact limiting factor that may bind you to only day trading or only swing but from our experience. We have seen that most successful prop firm traders are making a consistent amount of money with day trading and scalping (scalping is also a form of day trading) but, most of them fail after a month or two. Traders that survive the harsh environment of prop firms for months after months are actually swing traders.
What trading style to pursue is total upto an individual trader but we would once again suggest sticking to day trading if your account balance is 50K and below and if it’s above 100K, you may choose to go with day trading to pass the evaluation and switch to swing trading once you have passed the challenges and are on a real account.
With all of that being said, we hope that you liked the comparison. What trading style would you prefer as a trader? Let us know in the comments.
Also be sure to check out Absolute Drawdown VS Relative Drawdown next!