Know everything about swing trading versus day trading

Every individual investor has a different goal for investing their money in the stock market and can spare different amounts of time to manage these investments. If you are fascinated by the idea of investing money in the stock market and withdrawing it daily, then day trading could be the right option for you.

But some individuals who are unable to devote the same time needed to be a day trader and are comfortable with the idea of keeping their money invested in the market through their Demat Account, for a few days. Such individuals can resort to swing trading in the stock markets.

Both day trading and swing trading are trading strategies to invest in the stock market and earn maximum profit. Let us take a closer look at both.

What is day trading?

Day trading is defined as the strategy of buying and selling financial instruments such as shares, currency and commodities on a daily basis without holding on to them overnight. Both the actions of buying and selling of the financial instruments are carried out during the trading hours of a particular market or exchange. For Indian stock markets, day trading orders are placed between 9:30 am and 3:30 pm.

What is swing trading?

Swing trading is a strategy where the financial instruments (shares, currency, commodities) are held for a period ranging from a few days to a few weeks. In swing trading, money remains invested in the market for a longer period compared to day trading but the period is considerably shorter when compared to medium-term and long-term investing. For swing trading, the full amount for the securities to be purchased has to be deposited in advance for swing trading.

Advantages of day trading

There are several benefits associated with day trading. If you are a day trader, you can earn a profit even if the market falls, using a ‘short selling’ technique. Short selling is the term used to sell a stock at a higher price and buy it when the prices fall. Another significant benefit is that all your positions are closed out on the same day, which means you don’t have to stay awake at night thinking about your money and how the stock market will likely open the next day. Margin availability is another huge advantage of day trading because stockbrokers offer special margins to day traders under which individuals only have to pay a small amount of the total order size as a leverage against potential losses. Another major advantage of day trading is that it can be a full-time profession because the money can be withdrawn daily.

Disadvantages of day trading

You will not make huge profits every single day as a day trader. On certain days, when the market does not move in a favourable direction, your investment capital might get wiped out. The probability of losing money in the stock markets cannot be ruled out on any day because of the unpredictable nature of the markets. Any individual who is averse to taking a risk, should avoid becoming a day trader. To become an expert day trader, you will have to study a lot and spend time in doing research. There should be a proper trading plan in place such as what stocks to pick, when to enter a trade and when to exit etc. These different aspects of day trading require lot of time and practice. That is why it is imperative you devote sufficient time to research. That is why it is imperative you devote sufficient time to research.

Advantages of swing trading

Swing trading is relatively less risky than day trading and sounds more appealing. The biggest advantage of swing trading is that it is not as hectic as day trading and there is not as much pressure as in day trading. As a swing trader, you have a longer time to research and there is no hurry to enter and exit positions in a short span of time. T. The second benefit is as a swing trader, you can depend on term trends that take a few days to earn a profit instead of relying on a particular day’s trend. It is not necessary to do many trades daily in swing trading. In fact two or three properly researched trades in a week are enough in swing trading and the profit earned from them can match the profit from two  or three daily trades of day trading. Swing trading is relatively less riskier than day trading and sounds more appealing.

Disadvantages of swing trading

Swing trading looks to benefit from short-term trends in the market. The biggest disadvantage of swing trading is that you need a much bigger sum as investing capital because the facility of margin that is available to day traders is not available to swing traders. Swing trading is also fraught with risk because any sudden developments overnight could cause gap up and gap down openings in the stock prices. Because of this risk, the losses in swing trading are much larger as compared to those in day trading. Swing trading looks to benefit from short-term trends in the market. Therefore, if you are investing your money as a swing trader, you have to study both fundamentals and technicals of stocks you have selected for your trades to be profitable.

Which trading strategy to choose?

Regardless of your trading strategy, investing in the financial markets is fraught with risk. Your option has to be determined based on your lifestyle, your capacity to take risks, and the time you can spare for the markets every day.

According to the government data, Demat Account holders have more than doubled in three years to 7.38 crore.  HDFC Bank can assist you to engage and participate in the stock market with utmost ease and comfort. You can open a Demat and Trading Account and avail of facilities that assist in margin trading, day trading, swing trading as well as currency and commodity trading.

Open a Demat Account with HDFC bank and get started with trading today!

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* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice from before you take any/refrain from any action. Investments are subject to changes in tax laws. Please contact a professional consultant for an exact calculation of your liabilities.