Day Trading Vs Swing Trading – Part 2

Filed under: Learn Forex Trading |

 

(Continued from Part 1)

 

Screen shot 2013-01-22 at 11.29.16In contrast to day traders, swing traders tend to trade using the higher timeframe charts, and as these charts move much more slowly, swing traders tend to make fewer trades and look at their charts less. In my opinion, there are a number of advantages of being a swing trader.

 

To begin with, on the higher timeframe charts, price action is much less choppy and volatile, and the levels of support/resistance are much more reliable (especially on the daily timeframe chart). This means that price action signals are more reliable, and as such, your probability of success on any given trade is increased.

 

Another advantage of being a swing trader is that, because you are trading off of the higher timeframe charts (such as the 4-hour chart and the daily chart), and as your stop losses will naturally be wider, this means that the spreads from your broker will have less of an impact on your profits. As this is a little difficult to understand for beginners, let’s illustrate this point via an example. Let’s say on the 5-minute chart, that you have a stop loss of 20 pips, and the spread is 2 pips. You risk $100 on the trade, meaning that the spread eats up $10 of your profits (one tenth of your stop loss). Now, let’s say that on the daily chart, your stop loss is 200 pips, and the spread remains the same at 2 pips. Again, you risk $100 on the trade, but this time, the spread only eats away at $1 of your profits – a significant difference. Over a series of 100 trades, a day trader would lose $1000 to spreads, while the swing trader would only lose $100. This could be the difference between a profitable system and a loser.

 

So what are you – a day trader or a swing trader?

 

Now… what would you like to be?

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