Objectives of Swing Trading

The goal of swing trading is to identify an overall trend and capture larger gains within it. Swing traders aim to achieve gains which are higher than day trading.

Swing trading is more susceptible to market volatility. The central goal of every swing trader is to benefit from short/medium term price movements. Generating regular income is at the heart of swing trading.

The aim should be to make small gains consistently in a disciplined way. Swing traders should aim for a minimum risk to reward ratio of 1:2 or higher. 

The holding period shall depend upon the trend as analyzed by the trader but it is generally suggested that traders should look to cash out their trades within three to four days up to a month. 

Day trading Vs Swing Trading

Day trading is a trading strategy which attempts to benefit from price movements in a stock within market hours. This strategy typically involves entering a trade anytime during market open hours but necessarily closing the trade at market close.

Consider the Indian stock markets that open for trading at 09:15 hours and shut at 15:30 hours.

Day traders enter into trades anytime during this window but necessarily exit their positions by 15:30 hours. 

Holding trades only during the day serves two purposes:

• It ensures that the trader’s capital is not involved in a particular trade for a long period of time.
• Overnight risk of holding the stock and thereby risk of a gap up/ gap down opening is negated.  

Unlike swing traders, day traders are not interested in following trends, it is pure price action that piques their interest. Therefore, smaller time frame charts – one minute, five minutes, fifteen minutes candlesticks become much more important for day traders since their attempt is to capture live price action and benefit from it.

Day Trading Involves quick entry and exit on hitting a stop loss or targets. Day traders aim for small profits, generally 1% to 2% on capital employed while maintaining a strict stop loss. Day traders can either be discretionary or systematic depending upon the style that suits them.

Scalping (trying to earn very small profits close to 0.5%-1%) can be considered as a method of day trading.

Day traders are generally full-time professionals who depend upon their market performance as their source of livelihood. Thus, day trading unlike swing trading is not suitable for novice investors or people already engaged in business/profession/ jobs.