Scalping vs. Day Trading vs. Swing Trading
When traders are identifying ways to make the best returns, they consider a wide range of options. These options could include scalping or day trading. Some people have the impression that those who choose to scalp, are putting themselves at risk while trying to take advantage of the market, but this is not the whole story.
By definition, scalping occurs when a trader chooses to enter the market and attain a profit of between 3 – 10 pips and then leave the market once profit has been attained. They typically search for tight spreads using EUR/USD pairs as this makes it easier to attain a high profit over a short timeframe. In the event that the market is 5-8 pips against their chosen direction, these traders will withdraw from their open positions in the market, because scalpers rarely make use of a protective stop loss order. With scalping, many trades are carried out over a minimal period of time.
Day traders are different from those who are scalping as they have different targets, goals as well as stop losses. Day trading requires many trades to be made every day, using technical analysis to ensure profits are made and that losses from unprofitable trades are capped. These traders will normally target between 20 – 40 pips, using a protective stop loss order of 15 pips. They also choose to profit, although they do not focus much on the currency pair that will result in that profit. Day traders are more likely to achieve a higher success rate as they allow the market sufficient time on an intraday level to trade in a specific direction. They also make sure their trades will not rollover to the next day of trading.
Day trading is also often compared with Swing trading. Swing trades usually last longer — from 2 to 6 days — but they may last as long as 2 weeks. Below is an example of how Tad Devan, a Senior Currency Strategist from Market Traders Institute, conducts his swing trades:
Pros & Cons of Day Trading Vs. Swing Trading
There is one thing that day trading and swing trading have in common, and that is the fact that both will look to attain profit using relatively short-term currency movements. When you have to choose between the two, how can you? The best way is to evaluate the pros and cons and determine which style fits your trading personality. Here are some of those pros and cons:
Day Trading Pros
- Substantial profits are possible
- Day traders are able to work independently
- Day trading is thrilling and requires strategic thinking
Day Trading Cons
- Large losses can be made
- Stress levels are high and traders may choose to give up
- The day trader is fully responsible for results, even the bad ones
Swing Trading Pros
- Does not have high-stress levels
- Cheap to start up
- Can be done part time
Swing Trading Cons
- Risk of high losses
- Requires a higher margin
Considering the pros and cons of day trading vs. swing trading, rather than selecting one strategy over the other, it is better to evaluate one’s lifestyle and skills as a basis for the decision. If you are able to go into trading full time, then the day trading option would be ideal, though you would also need to have an excellent understanding of technical trading. Most traders can try swing trading, as it requires less of an investment and can also be done part-time.