Explaining Day Trading and Swing
difference between day traders and swing trading in forex
Forex day trading is for those traders that have enough time in the day to
frequently analyze, execute and monitor trades. Whereas swing trading is better suited for those forex traders who
have less time and can do trading that requires less monitoring.
|Depending on the amount of time spend on engaging in
and monitoring forex trading,
you can choose to do day trading or swing trading. (Image by
Day trading as the phrase suggests is trading done on the day, as such it
represents the most popular form of trading for retail day traders. They'll typically trade during market open
hours only, never holding trades overnight, and will typically hold trades for minutes to hours. Often many of the
trades are placed into the market through an automated strategy, with many not executed due to them being placed on
a "fill or kill" basis, they'll be timed to expire if not executed.
Less intense than
Day traders take far less trades than scalpers, many will only
trade one currency such as the euro, many will take that a stage further by only trading one currency pair, for
example; EUR/USD, which historically
has the lowest spreads, and is less likely to suffer slippage than many other pairs due to the improved
liquidity. Many day traders will also only take one or two trades each day, or trading session.
Typically day trading refers to a style of trading in which positions are always
entered and exited on the same trading day. Day traders will typically use technical analysis to attempt to find
and exploit intraday price fluctuations, they'll view their charts through typical intraday time frames, such as;
five minute, to one hour charts.
Relying on small
Day traders will also closely monitor economic calendar events, perhaps looking for high impact events to directly trade. As an example; they may either
manually trade data as its published, or place their trades into the market, before the key data is released. As
a consequence of trades only being held for a period of minutes to hours, large price moves aren't that common,
therefore (similar to scalpers), day traders often rely on small regular gains in order to build profits.
However, it's not uncommon for a currency pair to move by one percent in a day, graphically this is generally
represented by price reaching either S3 or R3.
To leverage their trading ability, day traders will usually trade on margin. Day traders generally fairly quickly move into
a position of regarding trading as a full time occupation, given that positions still require constant
vigilance; day traders always need to be aware of any rapid change in market sentiment, and perhaps set
alarms throughout the day to correspond with all the key medium to high impact news releases.
Swing trading, as the description suggests, is practiced by traders looking to
benefit from swings in sentiment and the corresponding price movement. Swing traders are looking for the trend to
begin to swing in their favour and then enter the market and stay with that trend until it finally ends; in effect
maximizing the potential profit.
As with day trading, the precision of entry isn't as critical as, for example,
with scalping, when a 3 pip entry miscalculation or poor fill can be terminal for a trade's success. That's not to
suggest that swing traders should abandon their discipline, but if you're aiming for a 200 pip gain then, similar
to our situation with day trading entries, an imprecise entry or exit due to a poor fill, or sudden price movement,
isn't going to render the unprofitable.
Part time trading
Swing trading is a method highly relevant for individuals who have full time
employment and can only monitor their trading positions during breaks and/or of an evening, or morning. Similar to
day traders, swing traders might only prefer to trade one security and only ever hold one position in the market.
Similar to many day traders, swing traders will use a combination of fundamental and technical analysis to make
their decisions, positions are held for a period of days, or weeks in an attempt to capture mainly medium term
Swing trading trades are generally exited when a previously established profit
target is reached, or the trader may consider not exiting until they're convinced the swing has reached its
exhaustion and is nearing its turning point. Similarly there are periods of time when swing traders are out of the
market. If they have a target in mind, perhaps 200 pips, and it's then
reached, they may exit and not be concerned if the trend then continues and they lose out on another, for
example, 100 pips as they'll consider their risk versus reward to have been met. Swing traders will then
patiently await for their conditions for entry to be once again fully met, before entering the market
Because swing trading takes place over a period of days to weeks (with an average
of one to four days), this trading style does not necessarily require constant monitoring. As such, traders who are
unable to monitor their positions throughout each trading session often gravitate toward this popular trading