Day Trading vs. Swing Trading
A compelling question to begin with is: What do you look for as a day trader?
The answer is simple. First, you’re looking for stocks that are moving in a relatively predictable manner. Secondly, you are going to trade them in one day. You will not keep any position overnight. If you buy stock in Apple Inc. (ticker: AAPL) today, for instance, you will not hold your positon overnight and sell it tomorrow. If you hold onto any stock overnight, it is no longer day trading, it’s called swing trading.
Swing trading is a form of trading in which you hold stocks over a period of time, generally from one day to a few weeks. It is a completely different style of trading, and you shouldn’t use the strategies and tools that you use for day trading to do swing trading. Do you remember Rule 2, where I mentioned that day trading is a business? Swing trading is also a business, but a completely different kind of business. The differences between swing trading and day trading are similar to the differences in owning a restaurant and a food delivery company. They both involve food, but they are very different: they operate with different time frames, regulations, market segments and revenue models. You should not confuse day trading with other styles of trading just because the trading involves stocks. Day traders always close their positions before the market closes.
Many traders, including myself, do both day trading and swing trading. We are aware that we are running two different businesses, and we have gone through separate educational programs for the two kinds of trading. One of the key differences between day trading and swing trading is the approach to stock picking. I do not swing trade and day trade the same stocks. Swing traders usually look for stocks in solid companies that they know won’t lose their entire value overnight. For day trading, however, you can trade anything, including companies that will soon go bankrupt, because you don’t care what happens after the market closes. In fact, many of the companies that you day trade are too risky to hold overnight because they might lose much of their value in that short of a period of time.
You have now reached Rule 3 of day trading:
Rule 3: Day traders do not hold positions overnight. If necessary, you must sell with a loss to make sure you do not hold onto any stock overnight.