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Day Trading vs Swing Trading

When you first decide to give Forex trading a go there’s two big decisions you need to take early on to determine which path you’re going to go down. Firstly you need to decide whether you’re going to be a technical or a fundamental trader. That decision generally makes itself nowadays with almost everyone (particularly home/retail traders) focussing on technical trading and giving very little time to the fundamentals.

The next decision you need to make and the topic I’m going to look at here are whether to focus on day trading or swing trading. I would say that the majority of new traders try to get into day trading because it seems the most logical way to pursue trading as a full-time career since it can be treated like a 9-5 job in many ways.

With that being said, is day trading actually the optimal way to pursue trading success or is swing trading worthy of some consideration? It’s my opinion that swing trading is actually far easier to become proficient at for a couple of major reasons.

Firstly you need to consider the commission structure of Forex trading. The main way the brokers make money out of you is via the spread of each market so the more trades you take the more commission you’ll pay. The other thing to note is that since your profit targets will always be smaller with day trading the spread actually makes up a higher percentage of your trade. If the spread of the market you’re trading is 2 pips and your profit target is something small like 10 pips then the spread obviously represents 20% of your trade so you need a really big edge to be profitable overall. If on the other hand your target is 100 pips because you’re swing trading then the spread only represents 2% of your trade so your required edge is far smaller.

The other major factor to consider is that the more trades you take and the quicker you have to make decisions on them the more likely you are to make a mistake. Swing trading gives you the time to really think things through and be careful and precise as opposed to day trading which sometimes forces you to rush decisions. This can be particularly difficult from a psychological point of view which can be absolutely critical. Day traders certainly suffer from more mental blow ups than swing traders and the fact that you’re generally forced to watch your trade unfolding makes it very hard to avoid being tempted to move your stop further away or close your trade before it’s hit it’s target. With swing trading once you place the trade you can simply walk away and even turn off your computer if you want.

It would certainly be naive to say that swing trading is “better” than day trading. Both can be hugely profitable and some people are clearly just suited to one more than the other so it can be a very personal decision. I just think there’s a lot of people out there struggling along with their day trading and not really getting anywhere who might have far more success if they gave swing trading a go so please make sure you give it some consideration at the start of your trading journey.

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