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Scalping vs. Swing Trading

Many people are involved in the stock market, some as investors and others as traders. Investing is done with a long-term perspective in mind—years or even decades. Meanwhile, trading continues to generate profits regularly. The period for which a trader holds a stock is a common method for distinguishing one type of trader from another—a variation that can range from a few seconds to months or even years.

Day trading, swing trading, scalping, and position trading are the most popular trading strategies. Choosing a trading style that fits our trading temperament is critical for long-term success. This article explains the distinctions between a scalping strategy and a swing trading strategy.

Scalping

To build profits, the scalping strategy targets minor changes in intraday stock price movement, frequently entering and exiting throughout the trading session.

Scalping, which is frequently classified as a subtype of day trading, entails multiple trades with very short holding periods ranging from a few seconds to minutes. Because positions are held for such short periods, gains on any given trade (or profits per trade) are minimal. As a result, scalpers execute a large number of trades—hundreds on a typical trading day—to build profit. Scalper risk is reduced by having a limited time exposure to the market.

Scalpers are quick and rarely adopt any particular pattern. Scalpers go short in one trade and then long in the next; they look for small opportunities. Scalpers profit from the bid-ask spread by buying at the bid and selling at the ask. Such opportunities to utilize successfully are more common than large moves, as even relatively calm markets experience minor movements.

Scalpers typically use short-term charts, like 1-minute charts, 5-minute charts, or transaction-based tick charts, for studying price movement and making certain trade calls.

Scalpers seek adequate liquidity to ensure compatibility with trading frequency. These traders must have access to accurate data (quote system, live feed) as well as the ability to execute trades quickly. High commissions tend to reduce profit when buying and selling frequently, as they increase the costs of performing trades, so direct-broker access is generally preferred.

Scalping is best suited for those who have the time to devote to the markets, can stay focused, and act quickly. Impatient people are said to make good scalpers because they tend to exit a trade as soon as it becomes profitable. Scalping is for people who can deal with stress, make quick decisions, and act on them.

What trading style is best for a person is determined by their timeframe; scalpers make hundreds of trades per day and must stay glued to the markets, whereas swing traders make fewer trades and can check in less frequently.

Swing Trading

Swing trading strategy entails identifying the trend and then trading within it. Swing traders, for instance, would typically select a strongly trending stock following a correction or consolidation, and exit just before it is poised to rise again, after pocketing some profit. Such buying and selling methods are repeated for reaping profits.

When stocks fall through support, traders shift to the opposite side, going short. Swing traders are typical “trend followers,” meaning that if there is an uptrend, they will go long, and if the overall trend is to the downside, they will go short. Swing trades can last from a few days to a few weeks (near-term) or even months (intermediate-term), but they typically last only a few days.

Swing trading falls somewhere between day trading and trend trading in terms of timeframe, patience required, and potential returns. Swing traders utilize technical analysis and charts which show price movements, which aids them in determining the best points of entry and exit for profitable trades. These traders study resistance and support, occasionally combining Fibonacci extensions with other patterns and technical indicators. Some volatility is beneficial for swing trading because it creates opportunities.

Swing traders keep an eye out for the possibility of greater gains by investing in fewer stocks, which helps to keep brokerage fees low.

The strategy works well for those who are unable to devote full-time attention to the markets and keep a minute-by-minute record of events. Part-time traders who want to keep an eye on what’s going on during work hours frequently use this strategy. Pre- and post-market reviews, as well as patience with overnight holdings, are essential for successful swing trading. As a result, it is not suitable for those who become anxious in such situations.

The table below provides a summary of the key differences between the two trading styles.

Scalp Trading Swing Trading
Holding period A few seconds to a few minutes, but never overnight Several days to weeks, and even months at times; most often held for a few days.
Number of Trades Can be hundreds during a day   A few
Chart 1-5 minute charts or tick charts Daily charts or weekly charts
Trader Traits Here, vigilance and impatience work well. Understanding trends needs more patience and precision.
Decision-Making Time Rapid Fluid
Strategy Extreme Moderate
Stress Level High Moderate
Profit Target Small, multiple Few but large
Tracking Continuous observation throughout the trading session Reasonable monitoring; requires current information on news and corporate events.
Suitability Not suitable for beginners Suitable for everyone – beginners, moderate, and advanced players

 

Each trading strategy has its own set of risks and rewards. Because no single “perfect strategy” exists to suit all traders, it is best to select a trading strategy based on one’s skill, temperament, the amount of time they can devote to trading, the size of their account, their trading experience, and personal risk tolerance.

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