Trading Education

What is the difference between day trading, swing trading, and long term investing?

Case studies - day trading

It is very important to properly understand the difference between day trading, swing trading, and long term trading in order to evaluate which trading strategy is best for you. Oftentimes the trading strategy depends on how much of a time commitment you are willing to spend making trades, or if you want to be an active trader at all. Let’s dive into each of the three common trading strategies to find which one best suits your interests.

What is Day Trading?

Day trading is the most active trading strategy there is and involves making multiple trades every day to profit on short term market movements. In this strategy rarely any positions are owned overnight. Day trading focuses on fast stock price changes and making quick trades. It is very fast-paced and allows for great profits. Day traders spend their time trading as a full-time job, so they need to be disciplined and extremely agile in their decision making. While great profits can be made from day trading, it can be very stressful and risky as often people are unsuccessful in this strategy. Day traders spend a lot of time researching and gaining experience trading before they can really be successful as day traders.

What is Swing Trading?

Swing trading is another popular type of active trading strategy, but is less of a time commitment than day trading. Swing traders often have other jobs besides focusing on their trades, as often these trades need a few days or weeks to work out. With this said, there is also less stress in swing trading as it is less of a time commitment, so people can still maintain a stable income to balance out any potential losses. Unlike day trading, swing trading does not require as much technology or analysis as day trading does. However, swing traders still seek out trading opportunities using technical analysis, but with higher risk than day traders since they are holding their positions overnight. 

What is Long-term Investing?

Long-term investing is a completely different strategy than day trading and swing trading as it is much more passive and requires little time commitment. Long-term investing consists of a more ‘buy-and-hold’ strategy, where you could hold on to positions for many months or years. Instead of focusing on quick movements in stock prices as with day trading and swing trading, long term investors care about the company as a whole and want to visualize which companies will have more long term growth. Like any trading strategy, long-term investing still requires some research before deciding which stocks you want to invest in. Long-term investors do not need to be actively watching their positions, as they do not need to move their trades around that frequently. Even when the market drops significantly as it did due to COVID-19, long term investors stay in the market with the belief that eventually the market will go back up in the long term, and they will have higher rewards.

How to decide which trading strategy is best for you?

In the end, deciding which trading strategy is best for you depends on your lifestyle, personality, and how much of a time commitment you are willing to spend. Starting out, long term trading investing might be the best option for you if you are looking for a low commitment and safer strategy. However, before deciding to trade you should definitely do your research to see what you want to invest in. On the other hand, if you are someone who enjoys risk-taking and is good under pressure, day trading or swing trading may be better for you. I hope this article was helpful for you in deciding which strategy is best for you.

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