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What Is More Profitable: Day Trading or Swing Trading? Are swing traders more successful than day traders? (Insights)

Last Updated on 10 February, 2024 by Trading System

Since the proliferation of online retail brokerage services, stock trading has gained a lot of popularity. One of the common questions among prospective traders is about the profitability of the different trading styles, so it’s normal that you want to find out which day trading or swing trading is more profitable.

Day trading has more profit potential than swing trading. There is a big risk involved in day trading and the profit targets are based on smaller price moves. Swing trading is less intense and may realize profits exceeding those of day trading due to the length of time they are in the market for each trade.

Although the answer is not that simple; so many factors are involved in comparing the profitability of the different trading styles. It is easy to say that, given a similar reward/risk ratio, day trading is more profitable because it takes more number of trades, but that analysis would be too simplistic because the profit potential per trade can’t be the same, and other factors like time commitment and income security matters a lot.

In this post, we will discuss what day trading and swing trading are and then discuss their profitability considering different factors that can affect it.

What is day trading?

Day trading is a style of trading where the trader opens a trade and closes it within the same trading day. The main idea of day trading is to capture the main price move of the trading day. A trade can last from a few minutes to over several hours, but the key thing is that it is closed before the day’s closing bell.

Most day traders make use of technical analysis, but they are also watchful of the day’s market news, which can have a huge impact on the outcome of their trades. The analysis is usually done on the lower intraday timeframes, such as the hourly, 30-minute, 15-minute, 10-minute, and 5-minute timeframes. A day trader can make up to 3-5 trades per day, depending on the number of stocks and markets he/she is monitoring.

What Is More Profitable: Day Trading or Swing Trading? Are swing traders more successful than day traders? (Insights)

What is swing trading?

Swing trading, on the other hand, aims to benefit from medium-term price moves that occur on the daily timeframe, unlike day trading that focuses on intraday price movements. The idea is to profit from individual price swings, one swing at a time. Those swings often last from a few days to some weeks.

What swing traders do is to try and enter at the beginning of a swing and jump out before an opposite swing starts, and they use technical analysis strategies for this purpose. Their analysis tells them when to buy a stock at the beginning of a new upswing and when to get out of the market because a downswing is emerging. Rarely do they bother about the impact of day to day market news.

Which is more profitable: day trading or swing trading?

There are two ways to look at this.

Simplistic consideration

With a simplistic consideration, you would think that day trading is more profitable than swing trading, and here is how the analysis goes:

Let’s say a day trader risks 1.0% of their capital on each trade and uses a 2:1 reward/risk ratio. If the trade is a winner, he makes 2% of his account size, but if it is a loser, he loses 1%. Now, let’s say he wins 50% of all his trades and, on average, places 4 trades in a day. This means that he gains 4% and loses 2%, making a profit of 2% per day. That would be about 500% per annum, considering 250 trading days in a year. Outrageous, right — even Jeff Bezos would abandon Amazon and go for day trading if it’s like that. But even if it’s just 1% profit per day, that would be about 250% per year which can never be sustainable.

For swing trading, on the other hand, a trader may only get about 6 trades in a week. So, assuming the same 2:1 reward/risk ratio and risking the same 1% of his trading account per trade, he makes about 3% per week, which would amount to 12% per month and 144% per annum. This, therefore, implies that day trading has more profit potential.

As we noted above, this is a simplistic analysis, which does not reflect reality at all. The truth is that even 144% is an unrealistic return in a year. It can happen in an extremely exceptional year, but it is almost impossible to make such returns consistently year after year. Maintaining a 50% win rate with a 2:1 reward/risk ratio is very difficult, even for an automated system. There will be times when you get huge drawdowns.

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

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

Realistic consideration

Now, let’s look at what is possible in real life and consider the profitability of both styles wholistically. In doing that, we need to consider some important factors. To start with, you need to take into account the number of trades, so it’s better to consider the profitability per the number of trades taken.

Given, day traders make more trades than swing traders, but because they trade based on analysis on the lower timeframes, the quality of those trades can never be as good as those of swing traders. In essence, their trading outcome and reward/risk ratio cannot be the same as those of swing traders. We all know that swing trading offers better trades with higher potential profits per trade. So, if a swing trader were to monitor more markets and stocks and make as many trades as a day trader, he would definitely make more profits.

Another factor is the time spent in analysis, placing trades, and monitoring and managing open positions. A swing trader spends less time in trading, so he has more time for other things. His trading can actually be part time, while he engages in other money-making ventures or working a 9-5 job, which brings in income. So, in comparing the profitability of the two trading styles, you need to consider the opportunity cost for all the time a day trader spends monitoring his screen all day long.

Moreover, you haven’t even considered the effects of stress, which could lead to trading mistakes, and the importance of having an alternative income, which eases the trader’s dependence on his trading profits, thereby improving his trading psychology — his ability to execute his strategy properly to make money.

Do not miss: Less Is More – Why It´s True in Trading

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What Is More Profitable: Day Trading or Swing Trading? Are swing traders more successful than day traders? (Insights)

Final words

In conclusion, both trading styles can be profitable, but we advise new traders to start with swing trading.

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



What is the main difference between day trading and swing trading?

Day trading involves opening and closing trades within the same trading day, focusing on intraday price movements. Swing trading aims to benefit from medium-term price moves on the daily timeframe, holding trades for days to weeks. Day trading is often perceived to have more profit potential due to the frequency of trades, but swing trading can realize profits exceeding day trading, considering the length of time in the market for each trade.

How is day trading profitability calculated?

In a simplistic analysis, day trading may appear more profitable due to the assumption of making multiple trades per day. However, this analysis often overlooks the challenges of consistently maintaining high win rates and the associated risks. Day trading profitability is calculated based on the risk/reward ratio, where traders aim for a certain percentage gain per trade. Factors such as the number of trades per day and win rate contribute to the overall profitability.

How is swing trading profitability calculated?

In a realistic consideration, it’s essential to look at the profitability per trade, taking into account the number of trades, the quality of trades, time commitment, stress levels, and the trader’s ability to have alternative income sources. Swing trading profitability is calculated by considering the risk/reward ratio per trade. Despite fewer trades compared to day trading, swing traders aim for higher-quality trades with the potential for larger profits per trade.

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