Scalping and swing trading: what is the difference?

Scalping and swing trading: an overview

Many people participate in the stock market, some as investors and some as traders. Invest in the long term—years or even decades. At the same time, the trade will make regular profits.

A common way to distinguish one type of trader from another is the period of time the trader holds the stock-the difference can range from a few seconds to months or even years.

The most popular trading strategies include day trading, swing trading, scalping and position trading. Choosing a style that suits your trading temperament is essential for long-term success. This article lists the differences between scalping strategies and swing trading strategies.

Key points

  • Scalping and swing trading are two more popular short-term investment strategies used by traders.
  • Scalping includes hundreds of transactions every day, where the position holding time is very short, sometimes only a few seconds; therefore, the profit is small, but the risk is also reduced.
  • Swing trading uses technical analysis and charts to track stock trends and profit from them; the time frame is medium-term, usually a few days to a few weeks.

Scalping

The goal of a scalping strategy is to make small changes in stock prices during the day, frequent entry and exit throughout the trading hours, in order to build profits.

Generally classified as a subtype of intraday trading technology, scalping involves multiple transactions with very short holding periods ranging from a few seconds to a few minutes. Because the position is held for such a short period of time, the profit of any particular transaction (or profit per transaction) is very small; therefore, the scalpers will make a large number of transactions-hundreds of transactions in an average trading day-to make a profit. The limited market contact time reduces the risk of scalpers.

Scalpers are fast and rarely support any particular model. The scalpers go short in one trade and go long in the next trade; small opportunities are their goal. Usually trading around the bid-ask spread-buy at the bid price and sell at the price-scalpers use the spread to make a profit. This kind of successful use of opportunities is more common than big moves, because small moves can occur even in a fairly calm market.

Scalper traders usually follow short-term charts, such as 1-minute charts, 5-minute charts, or trading-based time-sharing charts, to study the price changes of certain transactions and answer calls for specific transactions.

The scalpers seek sufficient liquidity to make it compatible with transaction frequency. Access to accurate data (quotation system, real-time feeds) and the ability to execute trades quickly are necessary conditions for these traders. High commissions tend to reduce the profit of frequent trading because they increase the cost of executing transactions, so direct broker visits are usually preferred.

Scalping is best for those who can put time into the market, stay focused, and act quickly. It is often said that impatient people become good scalpers because they tend to withdraw once the transaction is profitable. Scalping is suitable for those who can handle stress, make quick decisions and act accordingly.

Your time frame will affect the trading style that best suits you; scalpers make hundreds of trades a day and must pay close attention to the market, while swing traders have fewer trades and can reduce the frequency of inspections.

Swing trading

The strategy of swing trading involves identifying trends and then playing a role in them. For example, swing traders usually choose a stock with a strong trend after a correction or consolidation, and just before it is ready to rise again, they will exit after making some profit. Repeat this way of buying and selling to get income.

If the stock falls below the support level, traders will turn to the other side and go short. Generally, swing traders are “trend followers”. If there is an uptrend, they will go long, and if the overall trend is down, they may go short. Swing trading lasts from a few days to a few weeks (short-term)-sometimes even months (medium-term), but usually only lasts a few days.

In terms of time frame, required patience, and potential returns, swing trading is somewhere between day trading and trend trading. Swing traders use technical analysis and charts that show price behavior to help them find the best entry and exit points for profitable trades. These traders study resistance and support and occasionally use Fibonacci extensions in combination with other patterns and technical indicators. Some volatility is healthy for swing trading because it brings opportunities.

Swing traders remain vigilant about the potential for greater returns by indulging in fewer stocks, which helps keep brokerage fees low.

This strategy is suitable for those who cannot pay attention to the market full-time and always pay attention to things. Part-time traders who spend time looking at what happened during working intervals usually choose this strategy. Pre-market and post-market assessments are critical to successful swing trading, as is patience with overnight holdings. For this reason, it is not suitable for those who feel anxious in this situation.

The following table briefly describes the main differences between the two trading methods.

Scalp trading Swing trading
Holding period From a few seconds to a few minutes, never overnight Days to weeks, sometimes even months; most often held for a few days
Number of transactions There can be hundreds in a day Some
chart Scale graph or 1-5 minute graph Daily or weekly chart
Trader traits Be alert, impatient and work well here Understanding trends requires greater patience and precision
Decision time quickly body fluid
strategy extreme Ease
Stress level High Ease
Profit target Small, much Small but big
track Continuous monitoring throughout the trading hours Reasonable monitoring; need the latest information about news and company activities
Adaptability Not suitable for novice traders Suitable for everyone, from beginners to advanced players

Each trading style has its own risks and rewards. There is no single “perfect strategy” suitable for all traders, so it is best to choose a trading strategy based on your skills, temperament, time you can invest, your account size, trading experience and personal risk tolerance.

.

READ ALSO:   Equity swap
Share your love