Day Trading vs. Swing Trading

[sport302]

What is Day Trading?

The actual definition of a “pattern” day trader is someone who buys and sells the same stock in the same business day 4 or more times in 5 consecutive business days. Once in awhile you will execute a day trade just because you either get stopped out of a stock or you stumble across a huge gain. That is fine as long as you do not do it more than 3 times in any given 5 business days.

The point of day trading is to basically grab quick upswings in a stock and then grab the profits and turn them back into cash before the day ends. If penny stock investing is a junior level course then day trading is a senior level course that most seniors will fail.

First of all, to be a true day trader you have to keep a minimum balance of at least $25,000 dollars in your brokerage account. This probably eliminates most of you already no offense.

Secondly, unless you can sit at your computer all day monitoring stocks from open to close you will lose the day trading game. Day trading is a professional investors game not a basic investors game. If you are interested in trading stocks in a more active manner it is better to learn the art of swing trading.

What is Swing Trading?

It depends who you ask. Some say 2-3 days others say 2-3 weeks. I say it is 2-5 days and this is what I tend to do the most in my own trading.

This method of trading, in my view, is basically the idea of grabbing the quick upswings in a stock right after a slight pullback. Read all you want about investing strategies; but, in my opinion, it comes down to looking and learning how to read simple chart patterns. As you go about learning how to trade you will read about all different kinds of technical analysis and oscillators and some will be helpful at times; but most, in my opinion, just cause more confusion than assistance. Once you begin to understand how stocks move in relation to moving averages on a chart you will have a much better grasp of the concept of swing trading.

If you want the best "chance" of actually making money investing in the stock market on a regular basis; then, in my opinion, this is the best method of trading to master. This is because when you buy and hold a stock you not only catch the upswings in the market you also catch the downswings. Swing trading is basically trying to eliminate all the downswing portions of trading and grabbing all the upswings.

Is it 100%?

NOPE! You will have success and failure. More failure in the beginning and more success as time passes.

[Stark]

Can you give an example of how you research swing trading stocks and determine when to buy/sell?


I wrote a computer program in college that went through all S&P 500 stock history (d/led it from Yahoo) and bought every stock that was on a significant downswing/upswing and sold/bought back after it either went up or down 7% (gain or loss) or had a positive swing after x number of days (we tried different amounts of days ranging from 2-14). The exact strategy was to see if a stock went up 10% or down 10% and then buy/short sell once it started to reverse direction on a close day of more than .5%. Lame strategy yes, but it was fun to program and see how it worked out. And basically I have an open ended program where I can test strategies... so if your strategy is mathmatical at all, I'd like to test it out historically.

[dxu05]

Stark, I think you would be better off with fundamental analysis rather than technical analysis. Technical analysis is a monkey's tool for brokers to convince people to invest. In reality, the theory of a day to day random walk on the stock market is proving to be fairly strong.

There are arguments for technical analysis that I do believe in, there are definitely economic forces at play that you can attempt to capitalize on, however I believe that in the short term for day trading and swing trading you are going to run into a huge limitation.

Your returns are not only going to be taxed later, but immediately taxed by escalating transaction costs if you attempt to day trade, thus you have a price floor and something to lose even when your picks are right and it goes up. If you look at it closely, you can incur massive transaction costs that can cut profits to nil in seconds.

[pig4bill]

Random walk is a crock.

[Snipe]

[ QUOTE ]
Can you give an example of how you research swing trading stocks and determine when to buy/sell?


I wrote a computer program in college that went through all S&P 500 stock history (d/led it from Yahoo) and bought every stock that was on a significant downswing/upswing and sold/bought back after it either went up or down 7% (gain or loss) or had a positive swing after x number of days (we tried different amounts of days ranging from 2-14). The exact strategy was to see if a stock went up 10% or down 10% and then buy/short sell once it started to reverse direction on a close day of more than .5%. Lame strategy yes, but it was fun to program and see how it worked out. And basically I have an open ended program where I can test strategies... so if your strategy is mathmatical at all, I'd like to test it out historically.

[/ QUOTE ]

My new hero.....

[latefordinner]

I agree that random walk is a crock, but I think the sheer volume of information that you need to model to do successful technical analysis makes it beyond the reach of nearly all individual investors

[pr0crast]

[ QUOTE ]
Read all you want about investing strategies; but, in my opinion, it comes down to looking and learning how to read simple chart patterns... Once you begin to understand how stocks move in relation to moving averages on a chart you will have a much better grasp of the concept of swing trading.

[/ QUOTE ]

QFT.

However, in my opinion, moving averages are only "guideposts" and don't provide a real understanding for what is going on in the market. For that, you need to understand the price/volume relationship and channels.

[ QUOTE ]
As you go about learning how to trade you will read about all different kinds of technical analysis and oscillators and some will be helpful at times; but most, in my opinion, just cause more confusion than assistance.

[/ QUOTE ]

Also QFT. Technical indicators are by definition LAGGING, and will much of the time just confuse you.

Also IMO, day trading is something that is MUCH better to do on instruments of tremendous liquidity and leverage, like the ES (sp500 futures index). Stocks are like you said better for swing trading, b/c it takes them longer to make you the same $.

[pr0crast]

[ QUOTE ]
Stark, I think you would be better off with fundamental analysis rather than technical analysis. Technical analysis is a monkey's tool for brokers to convince people to invest. In reality, the theory of a day to day random walk on the stock market is proving to be fairly strong.

[/ QUOTE ]

You are wrong on so many levels, lol. "Random walk" is just a bunch of people's bad/lazy excuse for failure. But I guess it depends on what you mean by technical analysis, because I will agree that most of it is crap. There sure is a lot of crap out there.

[ QUOTE ]
Your returns are not only going to be taxed later, but immediately taxed by escalating transaction costs if you attempt to day trade, thus you have a price floor and something to lose even when your picks are right and it goes up. If you look at it closely, you can incur massive transaction costs that can cut profits to nil in seconds.

[/ QUOTE ]

What are these MASSIVE transaction costs you speak of? My broker charges something like $0.01/share for stocks, and $2/contract in futures. Transaction fees are totally negligible if you shop around. And returns are taxed later, but so what? Anyway, you can get around that by trading in your Roth IRA.

[pr0crast]

[ QUOTE ]
I agree that random walk is a crock, but I think the sheer volume of information that you need to model to do successful technical analysis makes it beyond the reach of nearly all individual investors

[/ QUOTE ]
All I need is price and volume.

[pr0crast]

[ QUOTE ]
Can you give an example of how you research swing trading stocks and determine when to buy/sell?

[/ QUOTE ]

here's a place to start:

build a universe of stocks (maybe 20 or so) that are reliable, repeatable, and liquid. i.e. sort for high relative strength, positive EPS, and make sure that to make your list the stock cycles for 6 20% runs in the last 5 months.

learn how to draw channels properly.

learn how price and volume are related.

profit $$$$