Day Trading vs. Swing Trading

This question arises often......what is the difference between day trading and swing trading?

The fundamental difference is duration. A day trade is always, without exception, closed before the end of the day. Nothing can eat into your capital like holding a stock overnight, and waking up the next morning to find the market down sharply, or that some overnight news has devastated the price of your stock. Daytrades can last anywhere between several seconds and several hours, but you always close them before the end of trading on any given day.

Swing trades, on the other hand, are meant to be held for a longer period, between several days and several weeks. The intention of a swing trade is that the stock is in a general uptrend with momentum that you expect to last more than one day.

Past the fundamental difference, though, are the logistics of each type of trade. A day trade is usually a large position, because you expect an immediate run on the stock. This necessitates a tight  .3% - .5% stop loss when entered, which can later be adjusted upwards as the stock moves up. As profits are taken off the table, the stop loss follows the price upwards. (Note: after the stock has made 3% - 4%, and you have taken several profits on the way up, you may be left with a smaller position. At this point you may decide that the stock has legs for a longer term, and allow the day trade to become a swing trade.)

Contrarily, a swing trade is a much smaller position, which allows you to carry a much looser stop loss. I personally prefer a stop loss between 7% and 10%. This allows for intraday deviations in the stock without stopping you out, but still offers some protection in case you were wrong about the stock's short term prospects. With a smaller position your capital is less exposed, and you can afford this type of stop loss.

Interestingly, the charts for day trades and swing trades look remarkably similar. Charts, though, are the subject of a whole post to themselves. Suffice it to state the obvious....for a day trade you expect an extremely short term run, while for a swing trade you expect the run might sustain itself over a period of weeks.