Types of Trading Styles: Swing Trading vs. Day Trading

Introduction to Different Trading Styles

There is much discussion about the merits of day trading and swing trading when spread betting, but which is best for you? If you chose day trading, then you need to be prepared to open a significant number of new spread bets that can extend in duration from minutes to hours. However, your main objective will be to close all of them by the end of the day.

In contrast, swing trading will involve you in executing much fewer trades that will be of higher quality. You will also need to maintain your spread bets active for longer periods of time that can extend from one day to a couple of weeks.

What is Day Trading?

Day trading involves using minute/hourly/daily charts and opening trading positions for a period of less than 24 hours, which includes intraday trading.

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You will require certain attributes in order to achieve spread betting success using day trading.

For instance, you will need to spend significant amounts of time monitoring your trades by sitting in front of your computer. In addition, you will have to make many trading decisions a day in order to enter and exit a relatively large number of spread bets. However, you will not need to concern yourself about the markets during the night. You must be able to handle adrenaline rushes because day trading can be quite hectic although exciting at times. You will also need to steel yourself in order to accept numerous losses as well as profits in short periods of time.

Consequently, you will need a powerful spread betting strategy, when you are day trading, that can produce for you more profitable wins than losses. Very importantly, you must learn to let your winners run so that you can claim the maximum profit while cutting your losses quickly. In this way, you will not have to achieve more wins than losses as long as you have a very positive reward-to-risk ratio. One major feature of your trading strategy is that it must be able to advise you quickly and accurately about quality entry and exit points for new spread bets.

You will find, however, that not all technical indicators and time frames are ideal for day trading. For example, you will discover that the hourly time frames and longer are not suitable for this type of trading. Instead, traders tend to utilize the one, five and fifteen minute charts. However, as the first two are very susceptible to noise, the 15 minute chart appears to be the favorite among day traders.

One popular day trading strategy centers on you examining the 15 minute chart for evidence of trends while using the one and five minute charts to identify entry and exit locations for new spread bets. In addition, if you do chose to day trade, then you must only trade in the direction of the current price trend, as identified on the 15 minute chart. As you can conclude, day trading is not for all investors because of its complexities.   However, if you have free time and enjoy excitement, then you could test day trading to discover if it fits your personality. If so, then you may have located your ideal spread betting niche.

What is Swing Trading?

If you are unable to monitor your personal computer on a regular basis because your time is limited, e.g. you have a full-time job, then you could opt for swing trading. Swing trading is used to capture profits by trading assets over a number of days, weeks or even months.

With this strategy, you will need to apply much more effort into carefully analysing and planning higher quality trades that will not require constant monitoring throughout the day. You will need to practice extensively at applying your selected trading strategy as well as accumulating as much knowledge and experience as you can. You can achieve this objective initially by using your demo account.

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Advantages of Swing trading

Swing Trading is used to capture profits by trading assets over a number of days. Traders, who prefer this approach, utilize technical analysis to find assets with short-term price impetus and then to execute spread bets, based on these securities, for time periods ranging from one day to a couple of weeks. They will speculate on assets by evaluating their intra-week or intra-month oscillations between oversold and overbought conditions. Consequently, swing trading may be best applied when the spread betting markets are range-trading.

Swing traders are not interested in the ideal timing at which to execute a long spread bet located precisely at a bottom and sell specifically at a top (or vice versa). In an ideal trading setting, they will watch for a validated oscillator crossover of a selected technical indicator before stepping into the market. The swing trader will try to exit spread bets as near as possible to the next oscillator crossover without being excessively precise.

Swing Trading may perhaps be among the optimum trading styles for spread betting novices although it still provides substantial profit potential for intermediate and sophisticated traders. This is because Swing Traders acquire ample feedback about the performance of their trades after a few days so that they do not lose their motivation. Furthermore, the duration time of the spread bets is not too lengthy to cause them to lose focus by becoming distracted.

Advantages of Day trading

In comparison, a day trader will keep positions active for a very limited time, i.e. from minutes to hours, and will activate many spread bets every day. All trades are entered and closed inside the same day. This type of trading depends on high levels of leverage and short-term trading strategies to capitalize on the small price movements of underlying assets. However, many spread betters steer clear of day trading because they consider that the rewards do not vindicate the risks. They consider that the success rate is substantially reduced because of the increased levels of risk exposure. Unquestionably, day trading calls for both an in-depth knowledge about how the markets function as well as a robust understanding of strategies which are effective at generating profits in the short term.

Many novices discover that the pure task of performing a multitude of trades daily is simply too great a white-knuckle ride because of their insufficient expertise and resources. Swing Trading has a considerable edge over the day trading in this respect since it provides a better cornerstone for a more straightforward trading strategy. This is because the advised entry and exit conditions, i. e. oscillator crossovers, can easily be represented by a reliable list of rules.

However, not all proposed entry points identified by such strategies will ensure profits. For example, your oscillator’s reading may be in an overbought condition but price will not comprehend this status. Consequently, additional bull activity of hundreds of pips could still result which could rapidly stop-out your brand-new spread bet trade if you had faithfully followed the rules.

To counter such losses, professional traders not only implement steps to verify each technical crossover but they also carry out extensive back-testing of historical data as a means to determine their strategy’s win-to-loss ratio and expectancy value. Subsequently, they then have an appreciation about the typical profit they can expect to secure over the long haul for each £1 risked.

Sound management money policies must also be used to ensure that more profitable spread bets are won as opposed to losses. For each trade, positioning both stop-loss and profit-target orders is vitally important so that only an acceptable proportion of your trading capital value is ever placed at risk.

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