DAYTRADING vs. SWINGTRADING
[May 2001 update: This post compares some of the differences/tradeoffs between our two primary modes of trading: intraday/scalp, and swing (multi-day/overnight trades). We also do some position trading... many times in option positions (multi-day to multi-week trades)].
===
The question often arises: how does intraday ("day") trading compare to swing trading and position trading? Here are a few thoughts on the subject. A full treatment would require... books.
I shifted from "investing" to shorter and shorter term stock trading (swing trading, which I define as 1-5 day trades) about ten years ago. Started daytrading (intraday positions, sometimes as short as a few minutes or less - scalping) on Level II six years ago. For the past five years, I have (and continue) to use a combination of the two trading styles (intraday & swing) for the bulk of my short-term investment activity. Today, my the duration of my stock trades are spread out from 5 seconds to 5 days, but they tend to average about 1-10 minutes for intraday stock 'scalp' trades, 2-5 days for swing trades, and 3-30 days for the occasional position trade.
Overall, I have found that when market conditions are favorable it is possible to accrue much larger profits by holding positions for several days or longer. However, with that style of trading comes much larger risks - translating to greater volatility on your equity curve. And that is a big deal - as in, THE big deal in this business (ref. previous educational posts).
With swing trading, you're exposed to the dreaded "overnight risk" caused by being exposed to earnings pre-announcements, global economic news, etc. However, these risks can be minimized with increased knowledge, technique, and caution [e.g. we now sometimes use options, spreads, etc to hedge ourselves on the overnights]. By daytrading/scalping intraday, you can definitely achieve tighter control of your risk.
For swing trading, you really need to start with more equity, to handle the inevitable ups and downs. And with swing trading, it can be more difficult to learn how to learn how to strictly adhere to stops, since by definition the losses, when they do occur will tend to be greater. It is best to try to "learn" swing-trading in a favorable (trending) market, at first. [5/01 update: for example, right now is not a good time to learn how to swingtrade! Even many seasoned pros are struggling with swings due to the choppiness... a market breakout may fix that, but who knows. As with daytrading, you have to learn how to swing-trade in many different market environments, which is difficult - I'd say a 2-3 year learning curve to become consistently profitable if you are one of the few who become truly good at it in the end game].
It depends upon the market environment and the type of stocks/sectors you're trading, your trading style, etc as to which style would be appropriate at any given time. When the market is 'running', you can put on several multi-day swing trades with trailing stops tailored to each stock. When the market is choppier, you'd want to day-trade and scalp for smaller profits. Rarely have I seen the kind of profits with daytrading, that are possible in swing-trading. However, the daytrading is definitely worthwhile, and profitable. Once you learn how to do it (generally takes 0.5-1+ yrs), it can become a nice profitable business endeavor. But you have to approach it knowing that 90% blow out for a reason: that being, unless you can learn to consistently apply good money management, you will too. However, the same applies to swing trading and even (sometimes) to long-term investing (read William O'Neil)! However, in investing generally the money-management can be implemented more passively, through diversification. In trading, you have to tackle it proactively.
IMHO, swing trading requires more knowledge and experience, especially in TA, and in trading style, war stories/losses/ comebacks, etc. You have to be prepared to lose more during the learning phase, to get good at it. But, the rewards are greater.
[At Intraday, we employ a mix of these trading styles, tailored to current market conditions. We also trade options and futures selectively which provide us further means to diversify our trading, hedge/reduce risk, and enhance results]. |
