Last Updated on 10 February, 2024 by Trading System

Most times, traders try to compare swing trading and day trading to know which is safer or less risky. So, it’s not out of point if you are wondering whether swing trading is safer and less risky than day trading. But is it?

Overall, swing trading is considered less risky than day trading, even though it is susceptible to overnight and weekend gaps. There are many reasons why swing trading is safer, such as the ability to trade part-time, reduced trading costs, and others.

While we will discuss many of the factors that make swing trading less risky than day trading, let’s first understand the main difference between swing trading and day trading.

Swing trading vs. day trading

Swing trading tries to benefit from medium-term price moves that occur on a daily timeframe, which often last from a few days to some weeks. The idea is to ride the price swings, one swing at a time, by entering at the beginning of a swing and hopping out before an opposite swing starts. Swing traders mostly use some technical analysis strategies to know when to hop in and out of the market, and their trades usually last for a few days or weeks. Because the trades stay over the night and weekends, they are susceptible to overnight and weekend price gaps.

Day trading, on the other hand, focuses on intraday price movements and tries to capture the main price move of the trading day, which can happen in a few minutes or over several hours. Day traders open and close their trades within the same trading day, and they mostly do their technical analysis on the lower intraday timeframes. However, they are also watchful of the day’s market news, which can have a huge impact on the outcome of their trades. One good thing about day trading though is that the trades don’t last over the night, so they are not exposed to overnight gaps.

Why swing trading is safer than day trading

Despite the risk of overnight and weekend gap inherent in swing trading, there are many reasons to consider swing trading safer than day trading. These are some of them:

The need to make money syndrome is minimized

Swing trading affords you time to engage in other income-yielding ventures that can serve as an alternative source of income. You do your analysis on the daily timeframe, so the data you need for your analysis is printed once a day, at the end of the trading day.

In other words, you can do your analysis at the end of the day or the morning of the next day, and it won’t take you more than a few minutes to place your trade when there is a tradable setup. You literarily have all the day to yourself. So, you can afford to get a normal 9-5 job or start a business while you do your swing trading part time. This is not possible if you are a day trader.

With another source of income to take care of your basic needs and settle your bills, you are less likely to have the need to make money syndrome, which often manifests as the urge to force profit from every trade — a habit that is more likely to blow your account than make you money. Thus, swing trading is safer.

You are less likely to overtrade

In day trading, you trade on the lower intraday timeframes — mostly from the 5-minute to the 1-hour timeframe. So, price data is printed more frequently, and your trading signals tend to appear more often. The implication is that you get to trade more often and stand at a risk of overtrading if care is not taken, and as you know, overtrading can lead to unnecessary/avoidable losses.

With swing trading, on the other hand, you analyze the daily chart, which only prints new price data at the end of the trading day. You analyze your price chart less frequently and get trading setups less often. Hence, the likelihood of overtrading is minimized, thereby reducing the associated risks.

So, based on the likelihood of overtrading, swing trading reduces the risk of overtrading and thus, can be considered safer than day trading.

Related reading: Is Swing Trading Safer and less risky Than Day Trading?

Related reading: Is Swing Trading the Same As Day Trading?

There are less stress and reduced chances of a trading mistake

Day trading would require you to monitor the price chart all day as you have to keep analyzing the charts with new price data that is printed. As you know, the lower the timeframe, the more frequently the price data is printed, and the more glued you are to your trading screen because you need to check the condition of the open trades (whether to close them or not) and also look for new trading opportunities. Monitoring your trading screen all day can be extremely stressful, and stress increases your chances of making mistakes, including poor judgment and fat finger mistakes.

Swing trading is a lot easier. In a day, you spend only a few minutes to analyze the chart and make your trading decisions, and that’s it until the end of the trading day or the next day. It is quite rare to get stressed from swing trading.

The trading cost is lower

With day trading, you enter and exit the market more frequently, and each of those trading actions costs some transactional fees and trading commissions. In a day, you can easily make up to 5 trades, which can translate to 20 trades in a week and 80 trades in a month. With swing trading, on the other hand, you may only make a few trades in a week, depending on the number of stocks you are watching.

Moreover, the cost of each trade as a percentage of the realized profit is higher in day trading because the profit target is smaller since trading is done on the lower timeframes. Hence, based on trading cost, swing trading incurs less cost and is considered safer.

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Final words

Despite its susceptibility to overnight and weekend gaps, swing trading is considered safer than day trading, and it is the best trading style for a beginner. Some of the reasons why swing trading is safer include reduced trading cost, the freedom to have an alternative source of income, and many more.

Here you can find our archive with all our swing trading articles.

FAQ

What are the reasons that make swing trading safer than day trading?

Swing trading is considered safer due to factors such as the ability to trade part-time, reduced trading costs, minimized “need to make money” syndrome, lower likelihood of overtrading, less stress, and lower transactional fees. Swing trading is considered less risky than day trading. Despite susceptibility to overnight and weekend gaps, several factors contribute to the safety of swing trading.

How does swing trading provide the flexibility to trade part-time?

Swing trading allows traders to analyze charts on a daily timeframe, providing flexibility to engage in other income-yielding ventures. Traders can do their analysis at the end of the day or the morning of the next day, making swing trading suitable for those with alternative income sources.

How does swing trading minimize the risk of overtrading?

Swing trading analyzes the daily chart, printing new price data at the end of the trading day. This reduces the frequency of trading signals, minimizing the likelihood of overtrading and the associated risks. Swing trading involves fewer trades compared to day trading, resulting in lower transactional fees and trading commissions. The cost of each trade as a percentage of realized profit is also lower in swing trading, making it a cost-effective option.