If you’re going to trade short-term stocks, you’re taking a lot of risks. That goes without saying. But there are still a variety of strategies and types of trading available.
In particular, every short-term trader has to decide between swing trading and day trading. Here are some of the pros and cons of each.
When you day trade, you make a lot of moves within a single day. You’re using complex charts and technical analysis to make these moves.
Day traders do not hold any positions overnight – hence the name. Everything is finished within the day, and they start new when the markets open again.
As a day trader, you can make substantial profits. That’s what draws people in! You also work alone and don’t report to anyone. It’s an incredible thrill, and you don’t need a college degree or advanced formal education. However, you do need to know your stuff and have nerves of steel.
Of course, while there can be substantial gains, there can also be significant losses. Many day traders never start making a profit. It’s an expensive business, and you’re always competing against folks who have a lot more capital and personnel than you do.
Finally, day trading is not something you can do as a side-hustle. You have to be fully committed to watching the markets all day, which means quitting your current employment. Stress and burnout are always a possibility.
Swing trading is a process where you identify swings in stock prices that take place over a number of days. Trades may take several days to work out – or even a few weeks.
For instance, you might think there’s going to be a short-term increase in Canadian marijuana stocks. You would buy the stock and wait for that increase to materialize. Once it does, you sell your holding.
The benefits of swing trading include that you don’t have to do it full time. Because you’re targeting specific stocks over a short period, you can continue to work in another job. You still have the opportunity for great profit, but it takes longer to materialize. As a result, swing trading is not likely to become a full-time job.
You also don’t need expensive trading tools. The investment for swing trading is much lower than day trading. With just a computer and regular data, you can do well.
However, you need higher margins to hold trades overnight. This means you provide more of your own capital, rather than using as much leverage as a day trader. You can also lose significant money.
Which is Better For You?
Many people are excited by the thrill and potential for big profits when they approach short-term trading. However, it’s vital to know what your particular skills and inclinations are.
If you love excitement and have very steady nerves, you may be able to make a go of day trading. However, there’s nothing wrong with doing a bit of swing trading first to get your feet wet.
Swing trading is excellent for those who want to dabble in the markets and don’t have the tolerance for stress and risk that day traders need. You need to know both technical and fundamental analysis, rather than relying on charts alone.
Which one do you prefer? Share in the comments!