Welcome To The Ultimate Heavy Weight Championship: Day Trading vs. Swing Trading

Posted Thursday, March 29, 2012 by
Dave Green • 3 min read

Tyson fights for the heavy weight championshipLet's talk about two of the most popular and successful trading strategies among forex traders: Day trading and Swing Trading. Sometimes it seems like the argument between fans of the two systems has been raging since the dawn of time! Of course, there is no clear answer as to which is better, although, I have my own opinions (more on which later). Day trading means buying and selling foreign currencies and holding them for no more than a single day. Swing trading is a longer term trading strategy, usually lasting from a number of days up to a week. So the major difference between the two is the length of time trades stay open.

A day trader will open a position at the beginning of a session and close it before the end of the trading day (usually, when the N.Y. session or the European session is over). This strategy requires 20-60 minutes of daily market research each morning, to go through technical and fundamental analyses on charts and events, in order to prepare a trading plan on the currency pairs the trader plans to trade. Day trading is based on relatively small price movements. A successful position offers profit of a few tens up to a couple of hundred pips per trade. It is recommended to trade on the majors, since they are the most volatile pairs, and, the market trends on them are the most powerful.

Swing trading requires more experience and more understanding of fundamentals. Swing trades are based on market sentiment, momentum, traders' expectations and important financial events. These can cause major price movements. Swingers look at daily and weekly charts to spot currency pairs that are in the extremes of their range, indicating that a serious reversal may be about to occur. The profit expectations per swing trade are usually bigger, but the number of trades smaller than in day trading. Swing trading is also less frantic, but a successful swing trader can make very high returns with this strategy. In my opinion, Swing trading is excellent for experienced traders who have the patience to wait for days for an opportunity or who lack the time to check the market daily, or for traders who trade with at least $1,000 in their trading accounts.

Back to Day trading: although maybe the most popular strategy worldwide, day trading has its critics. Because it involves higher leverage per trade it can be seen as risky. It is also less profitable per trade. Nevertheless, I think that when it’s done right day trading is fantastic. The big problem with day trading is that so many people do it without understanding it. Too many traders get dazed by the possibilities to make fast money it offers, stop trading by their rules and forget their trading plans. Too many beginners start day trading without first knowing the basics of the foreign exchange market. Finally, too many traders forget to set a Stop Loss or use extremely high leverage (my rule is to never trade with a leverage higher than *25). The result is like a first time gambler walking into the Casino Royale poker room, pulling out his “dineros” to buy chips, winning a round or two and then getting swept away by euphoria. What happens next? He starts making stupid mistakes and before he knows what’s happening he’s lost it all.

Bottom line: I think that day trading can deal the knockout blow to swing trading. It is one of the best trading strategies, if you play by the rules. Don’t look to become a millionaire in a week, because it’s not going to happen. But if you’re seeking an opportunity for great earnings, with potential returns of tens of percents a month, and you have the time to study the market each day, I think day trading can be right for you.

FXML’s signals system is suited to both day trading analysis and swing trading analysis. Check it out.

Which do you think is better: day trading or swing trading? Let us know right here.

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