Explaining Day Trading and Swing
Learn the 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
you can choose to do day trading or swing trading. (Image by Pixabay.com)
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 scalping
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
Relying on small gains
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
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 market moves.
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 again.
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 style.