If you have ever wondered what the differences between day trading vs swing trading vs long-term investing are, we got you covered!
This article will briefly go over the key differences, discuss trading time frames, and touch on the trading psychology of each.
What is Day Trading, Swing Trading, Long Term Investing?
Novice traders may not realize there is a difference between the type of traders that exist in the market. While we are all investors of some kind, our trading style and how long we desire to hold our positions may be quite different.
This is where the description of a day trader, swing trader, or long term investor comes in.
Day trading describes a position that is bought and sold on the same day. Someone who chooses to day trade is looking to buy a financial asset and sell their position before market hours close. This can be accomplished in any of the markets: the stock market, forex market, futures trading, or options trading.
Swing trading describes a position that is held for one or more days taking advantage of an asset’s swing highs and lows in the market. Someone desiring to swing trade is looking to enter a trade position and exit the trade in several days or weeks. Like day trading, this can be accomplished in all financial markets.
Long term investing describes a trade position that is held for months or years. This allows the investor to take advantage of the market’s natural ebb and flow in price action over a longer period of time. Again, this kind of trading can be utilized in all markets although rarer in option trading.
What Time Frames do Day Traders, Swing Traders, or Long Term Investors Use?
Since day traders trade daily, swing traders generally a few days, and long term investors invest for months, the time frames in which they conduct their research, technical analysis, and enter/exit trades will be different.
All these types of investors will use trading strategy, forms of fundamental analysis, and chart patterns to trade. The difference between what they see is when they see it and how they use the information.
Day trading takes advantage of short-term momentum, price breakouts, and volume to capture gains daily. To accomplish this, day traders analyze the market on a shorter time frame.
Since intraday traders are looking to buy and sell in the same session, they desire to know in real time what the market is doing in a matter of hours down to minutes. For example, they may choose to analyze a stock on a five-minute chart and perform trade entries and exits using the price movement on a one-minute chart.
Swing traders mostly use daily and hourly charts to perform their market analysis. They are looking at larger ranges in price movement where swing highs and lows have been created.
The additional time swing trading offers, be a few days or a few weeks, allows a trader to identify key price levels and give the stock time to reach profit targets or get back to a level of support or average value.
Long term investors naturally analyze longer term data to determine the financial asset they desire to invest in. This may be daily, weekly, monthly or even historical data over the years.
Traders who prefer long term investing, or traders who diversify their portfolio by entering a long term investment, are focused on long term growth. They look at longer term data, may seek advice from industry experts, and even enter trades more so on a company’s past performance and growth, products rolling out and their impact on society, or long-term financial stability.
Should I Day Trade, Swing Trade, or Implement Long Term Investing?
Becoming a day trader, swing trader, or long term investor happens more so over time. You can certainly diversify your personal investment strategy and financial portfolio by doing all three!
Learning to trade stocks is not only an educational process but also psychological. Many traders don’t realize this fact until they are well into their trading journey.
It really boils down to your trading personality, investment capital, risk tolerance, and time commitment.
Below is a general breakdown of each trading style. Trading psychology is a huge aspect of developing your preferred trading style and the type of trader you become.
Get to know your emotional and financial trading tolerance and capitalize on it!
Trading Styles: The Day Trader
As a day trader, you will most likely…
Place multiple trades a day (know cash vs margin account and pattern day trading rules!).
Conduct research and technical analysis on shorter time frames (hours/minutes).
Feel excitement, stress, fear, FOMO, hesitation, you name it, until you get over your emotions and become more robotic trusting your trading strategy.
Get in and out of trades daily before the close of the market.
Experience profits and/or losses every trading day.
Know that every day is a fresh trading day full of trading opportunities!
Be “working” and researching during market hours; practicing on/off hours.
Trade daily according to your account size and risk tolerance.
Trading Styles: The Swing Trader
As a swing trader, you will most likely…
Place fewer trades a week (know cash vs margin account and pattern day trading rules!).
Conduct research and technical analysis on daily or hourly time frames.
Endure all those same emotions as a day trader.
Hold your trades longer; a few days, several weeks even.
Experience trading profits and/or losses.
Experience possible after-hours anxiety dwelling on open trade positions.
Be able to do research during and after market hours to determine trade positions.
Experience capital being tied up due to length of trade.
Trading Styles: The Long Term Trader
With long term investing, you will most likely…
Take on one trade every so often. Not daily, not even weekly!
Conduct research and technical analysis on higher time frames and using historical data.
Feel little to no emotional bearing on your day-to-day because your investment is focused on long term growth rather than short-term profits.
Hold trades long term; months or years.
Experience trading profits and/or losses.
Experience larger amounts of trading capital being tied up in investments.
Summary: Day Trading vs Swing Trading vs Long Term
Many traders decide on an investment strategy based on personality, their finances, and the time they can dedicate to learning and research.
For example, having a full time job and trying to day trade would be doable for sure, but have its challenges. Someone with limited daily time may initially gravitate towards swing trading positions or longer term investments.
Another example would be an individual who doesn’t have the long term investment capital required. If you are working with a smaller account size, day trading or swing trading stock options may suit your personal finance needs. Building small profits consistently and increasing contract sizing will grow an account.
Whether you decide to day trade, attempt swing trading, or dabble in long term investing, do your research.
Invest in the necessary education for the trading style you desire to learn before you risk money in the market.
Take time to practice paper trading the financial asset you desire to trade.
These aspects will make all the difference and possibly help you achieve your trading goals and enhance your profit potential!
Maurice Kenny has helped over 600 people become financially free through one-on-one coaching, mentorship, and options trading strategy. Many of these new traders are now full-time traders, and they all started by watching his 1-hr webinar.
Feel free to check out other FREE educational resources to help guide you as you begin your new journey to financial freedom.
Also, download a (FREE E-BOOK) by Maurice Kenny, “DAY TRADE LIKE A MILLIONAIRE.”