Intraday Trading Vs Swing Trading: Which One is Right for You?

What is Intraday Trading?

Intraday trading can be defined as buying and selling of financial instruments such as stocks, shares, currency, commodity etc. on a daily basis without taking ownership of the securities overnight. Both the actions of buying and selling of a particular financial instrument are carried out within the trading hours of a particular market or exchange. In case of stock markets in India, the intraday trading orders are placed between 9:30am and 3:30pm

What is Swing Trading?

Swing trading refers to the trading strategy in which the shares, stock or other financial instruments are held for a period ranging from few days to few weeks. Money stays invested in the markets for a longer period as compared to intraday trading but for a shorter period as compared to medium term or long term investing. In swing trading, the entire amount of the purchased securities need to be deposited in advanced.

Advantages of Intraday trading

There are many benefits of investing you money in intraday trading. In you invest in intraday trading then you can make profits while the markets are falling as well. This is possible through ‘short-selling’. Short selling is the process of selling a stock at a higher price in and later buying the same when the prices reduce. Another benefit of intraday trading is that all your positions in the market are closed on the same day, which means you do not have to worry about your money at night thinking about how the stock markets will open the next day. Your money does not get ‘stuck’ in the stock markets overnight. Availability of margins is another big benefit of intraday trading. Stock brokers offer special margins to intraday traders under which, traders have to only pay a small amount of the total order size as a leverage against any losses. Another additional benefit of intraday trading is that intraday trading has proved as a regular scope of earning for many people as the money earned from the markets can be withdrawn on a daily basis. These benefits make intraday trading interesting and beneficial for many traders who bet their money here.

Disadvantages of Intraday Trading

Apart from the above mentioned benefits of intraday trading, there are many disadvantages to it as well.In Intraday trading not all days will give you double digit profits. There are bound to be some days when the markets will not move in favorable direction and you may end up losing out on your investment capital. Every intraday trader has faced loss in the stock markets. The possibility of losing out is present on every day in the stock markets as markets are unpredictable. Hence, for a person who cannot risk his money, it does not make sense to invest the same in intraday trading. Also, for excelling at intraday trading, you need to study and do you research well. You should have a properly framed trading plan which would cover the aspects of what type of stocks to pick, the strategies to use, when to enter the trade, when to exit it etc. All these aspects related to intraday trading require a lot of practice and time as well. Hence, if you cannot spare time for this research, you should not invest in intraday trading.

Advantages of Swing Trading

One of the biggest benefit of swing trading is that it is a lot less hectic and does not cause pressure like intraday trading. As a swing trader, you can easily devote longer time to your research overnight and there is no hurry to enter or exit your position in a short span of time. Another benefit is that as an intraday trader you can depend on term trends which happen over a period of few days to realize your profits, instead of being dependent of one particular day’s trend. In Swing trading you do not need to punch in number of trades on a daily basis. In fact, two to three well researched trades in one week are sufficient for swing trading as expected profit can cover up for the profit from two to three daily trades put for intraday trading. Swing trading is relatively less riskier as compared to day trading and this is another prospect which appeases many who get inclined towards intraday trading.

Disadvantages of Swing Trading

Swing trading has its share of cons too. In swing trading, the investing capital you need is much more than in intraday trading, because the facility of margins is not available in Swing trading. Also, swing trading carries with it the overnight risk of any sudden developments which might lead to gap up and gap down openings in the stock prices. These can be very dangerous if they are in the direction leading to losses.

Because of this reason the losses in swing trading can also be huge as compared to the losses in intraday trading whether the aim is to book small profits and hence the stop loss and exit prices are located close to the entry price. However, in swing trading, the stop loss price and target price are usually further away from the entry price and hence, losses incurred can be huge. Swing trading aims to capture the effect of short term trends on the markets. Hence, if you are investing your money in this strategy, then you need to study both fundamental and technical aspects related t the stocks you are choosing and only then your trades can be successful.

CONCLUSION

No matter what your trading style may be, the risk of losses in the stock markets is ever present. A good investment advisor will always advise you the best option based on your lifestyle, your risk taking capacity and the time you can devote to the markets each day. Different investment advisors have different types of tools and offerings to help you in trading. It depends on you and your financial condition as to which method works best for you.