Stock Picks 101 - Day Trading Versus Swing Trading
When you trade stock picks for any length of time you learn very thoroughly that there's no such thing as a free lunch.
In other words, you are always making trade-offs.
What are the trade-offs between day trading and swing trading? For one thing, in day trading, you close your positions at the end of the day, whereas swing trades usually take a few days to complete.
When you day trade, because there is no overnight risk, there is a greater potential for profit.
Additionally, when you close your position at the end of the day, you can use higher leverage.
This means you can make your money work harder for you.
So, what is the down side of day trading stock picks?For one thing, by the nature of the short duration of the trade, you need to pay attention to your positions continuously.
This also means you can only manage a very small number of positions.
For many people, this means just one position at a time.
This means you need to concentrate on and pay attention to your position the whole day.
However, by far the biggest danger in day trading is that you have very little time to react if the position starts to go against you.
Assuming you have the margin to hold positions overnight, you must be ruthless at getting out of losing positions.
Day trading margin can be up to 4 to 1, but overnight it can only be up to 2 to 1.
Of course, you never want to go right up against your margin limit.
If you do, and the trade goes against you, the brokerage will either force liquidation of the position, or worse, give you a margin call.
So, what are the advantages of swing trading?You have more leeway about how carefully you watch your position when you swing trade.
Also, you have a bit of time if the position should start to go against you.
Finally, you can handle more positions because you don't have to pay such acute attention to each one.
The danger of swing trading is that if the position does go against you, you may end up with a "position" trade.
Be careful to not let this happen to you because in doing so you'll eat up valuable margin.
Speaking of margin, as previously mentioned, swing trades don't let you work your money as hard because of overnight margin requirements.
Ultimately, whether you choose to swing trade or day trade will depend on where you can be the most successful.
Usually you can tell because you will enjoy or develop an affinity for one or the other.
Either way, remember that the purpose of trading is to maximize profit at minimum risk.
In other words, you are always making trade-offs.
What are the trade-offs between day trading and swing trading? For one thing, in day trading, you close your positions at the end of the day, whereas swing trades usually take a few days to complete.
When you day trade, because there is no overnight risk, there is a greater potential for profit.
Additionally, when you close your position at the end of the day, you can use higher leverage.
This means you can make your money work harder for you.
So, what is the down side of day trading stock picks?For one thing, by the nature of the short duration of the trade, you need to pay attention to your positions continuously.
This also means you can only manage a very small number of positions.
For many people, this means just one position at a time.
This means you need to concentrate on and pay attention to your position the whole day.
However, by far the biggest danger in day trading is that you have very little time to react if the position starts to go against you.
Assuming you have the margin to hold positions overnight, you must be ruthless at getting out of losing positions.
Day trading margin can be up to 4 to 1, but overnight it can only be up to 2 to 1.
Of course, you never want to go right up against your margin limit.
If you do, and the trade goes against you, the brokerage will either force liquidation of the position, or worse, give you a margin call.
So, what are the advantages of swing trading?You have more leeway about how carefully you watch your position when you swing trade.
Also, you have a bit of time if the position should start to go against you.
Finally, you can handle more positions because you don't have to pay such acute attention to each one.
The danger of swing trading is that if the position does go against you, you may end up with a "position" trade.
Be careful to not let this happen to you because in doing so you'll eat up valuable margin.
Speaking of margin, as previously mentioned, swing trades don't let you work your money as hard because of overnight margin requirements.
Ultimately, whether you choose to swing trade or day trade will depend on where you can be the most successful.
Usually you can tell because you will enjoy or develop an affinity for one or the other.
Either way, remember that the purpose of trading is to maximize profit at minimum risk.
