Scalping vs. Swing Trading: What’s the Difference?

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Scalping vs. Swing Trading: What’s the Difference?

Scalping vs. Swing Trading: An Overview

Many people are involved in the stock market, some as investors and others as traders. Investing is done with the long term in mind—years or even decades. Meanwhile, trading continues to generate profits on a daily basis. The duration span for which a trader keeps a stock is a popular measure for identifying one kind of trader from another—a variation that may vary from a few seconds to months or even years.

Day trading, swing trading, scalping, and position trading are the most common trading tactics. Choosing a trading strategy that fits your trading temperament is critical for long-term success. This article compares and contrasts a scalping approach with a swing trading method.

Key Takeaways

  • Scalping and swing trading are two of the most popular short-term investment tactics.
  • Scalping is placing hundreds of transactions every day in which positions are maintained for extremely little periods of time, often just seconds; as a result, gains are tiny, but risk is decreased.
  • Scalping often requires a high level of analytical ability, but traders do not need to be patient.
  • Swing trading use technical analysis and charts to identify and benefit from stock market movements; the time range is often intermediate, ranging from a few days to a few weeks.
  • Swing traders may not need as much expertise as scalpers since swing trading requires less time to examine financial charts.

Scalping

To develop gains, the scalping method targets modest fluctuations in intraday stock price movement, regularly entering and quitting during the trading session.

Scalping, which is sometimes classed as a form of day trading, involves several transactions with extremely short holding periods ranging from a few seconds to minutes. Because positions are maintained for such brief periods of time, gains on any one transaction (or profits per trade) are minimal. As a consequence, scalpers execute hundreds of transactions on a typical trading day in order to benefit. Scalper risk is reduced by having a limited time exposure to the market.

Scalpers are rapid and seldom follow any specific pattern. Scalpers go short in one transaction and then long in the next; they look for minor chances. Scalpers often benefit from the bid-ask spread by purchasing at the bid and selling at the ask. Such possibilities to profit are more regular than major changes, since even very calm markets have modest fluctuations.

Scalpers often use short-term charts, such as one-minute or five-minute charts. Transaction-based tick charts may also be used by scalpers. These charts are used to analyze price movement and make trading decisions.

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Scalpers want appropriate liquidity to ensure consistency with trading frequency. These traders need precise data (quote system, live feed) as well as the capacity to execute deals quickly. High commissions tend to limit profit with frequent buying and selling because they raise transaction expenses, therefore direct-broker access is often favored.

Scalping is best suited for people who have the time to commit to the markets, remain focused, and move quickly. Impatient persons are thought to make effective scalpers since they prefer to abandon a deal as soon as it gets lucrative. Scalping is for those who can deal with stress, make rapid judgments, and act on them.

What trading strategy is ideal for you depends on your timescale; scalpers make hundreds of deals per day and must remain dedicated to the markets, while swing traders make fewer trades and may check in less often.

Swing Trading

Swing trading method entails spotting the trend and then trading inside it. Swing traders, for example, would often choose a highly moving stock after a drop or consolidation, then leave just before it is poised to climb again. Such purchasing and selling procedures are repeated in order to profit.

When equities fall through support, traders shift to the other side, going short. Swing traders are often “trend followers,” meaning that if there is an upswing, they will go long, and if the broad trend is to the negative, they will go short. Swing trades may run from a few days to a few weeks (near-term) or even months (intermediate-term), although they are often just a few days.

Swing trading sits between between day trading and trend trading in terms of period, patience needed, and possible rewards. Swing traders utilize technical analysis and price action charts to assist them find the ideal places of entry and exit for lucrative trades. These traders examine resistance and support, oftentimes combining Fibonacci extensions with other patterns and technical indicators. Some volatility is beneficial for swing trading since it creates possibilities.

Swing traders remain vigilant for the possibility of higher profits by investing in fewer companies, which helps to keep brokerage costs low.

The method works effectively for people who are unable to devote full-time attention to the markets and maintain a minute-by-minute record of events. Part-time traders who want to keep an eye on what’s going on during work hours often use this method. Swing trading requires pre- and post-market evaluations, as well as patience with overnight holdings. As a result, it is not suitable for individuals who get worried in such circumstances.

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The table below summarizes the key distinctions between the two trading techniques.

Scalp TradingSwing Trading
Holding PeriodA few seconds to minutes, never overnightA few days to weeks, even months at times; most commonly held for few days
Number of TradesCan be hundreds during a dayA few
ChartTick chart or 1-5 minute chartsDaily or weekly charts
Trader TraitsVigilance, impatience work well hereGreater patience and precision required to understand trends
Decision-Making TimeRapidFluid
StrategyExtremeModerate
Stress LevelHighModerate
Profit TargetSmall, multipleFew but large
TrackingConstant monitoring throughout the trading sessionReasonable monitoring; requires up-to-date info on news and corporate events
SuitabilityNot for novice tradersSuitable for all, from beginners to moderate and advanced players

Each trading strategy has its own set of risks and rewards. Because no one “ideal method” exists to fit all traders, it is advisable to choose a trading strategy based on your talent, temperament, the amount of time you can devote to trading, the size of your account, your trading experience, and personal risk tolerance.

FINRA Requirements

The Financial Industry Regulatory Authority (FINRA) establishes trading rules depending on an investor’s degree of investing activity. Day trades and pattern day trader are the two major definitions of scalp trading and swing trading.

A day trade happens when a single security is acquired and sold on the same day in a margin account. This applies to all sorts of assets, including options, and cash accounts often prohibit day transactions.

A pattern day trader is someone who makes four or more day transactions in five business days. The amount of day transactions executed must be more than 6% of all trades executed within that account during any given full business week period.

These two guidelines are often used to scalp traders who want to close out their holdings before the end of the night. This also applies to scalp traders who execute a large amount of transactions each day, often overlapping a buy and sell order for the same securities on the same day.

A pattern day trader who exceeds their daily purchasing power limit is susceptible to a day-trading margin call and has up to five working days to fulfill the call criteria.

If a scalp trader is identified as a pattern day trader, the trader must have at least $25,000 in their margin account on any given trading day. This equity requirement may be met using cash or securities. If the value of the margin account falls below $25,000, the trader is not able to trade until the minimum amount is recovered.

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Pattern day traders are also not permitted to trade up to specific restrictions subject to their excess maintenance margin. The amount by which the equity in their account exceeds the minimum amount of equity necessary is referred to as a maintenance margin excess. In general, the daily trading limit is often up to four times the extra maintenance margin.

Is Swing Trading Good for Beginners?

Swing trading is typically seen to be better for novices than scalping or day trading. Swing trading needs less skill and trading knowledge. Furthermore, swing trading normally takes less time since it does not need a trader to actively monitor positions.

How Is Swing Trading Better Than Scalp Trading?

Swing trading has the advantage of being less costly than scalp trading. Swing trading necessitates fewer orders, resulting in lower trading expenses. Swing trading positions may also be created over days, thus a trader is not always necessary to check their holdings constantly.

Though success is not always guaranteed in swing trading, profit is frequently made over a smaller number of trades. As a result, swing traders can typically make a similar amount of money as scalp traders while requiring less activity and incurring a higher profit on each trade.

How Is Scalp Trading Better Than Swing Trading?

Scalp trading doesn’t require much patience; an investor may turn around and sell a security within a minute of buying that security. Some traders find comfort in exiting out of all positions by the end of the day, and some traders may find this style of investing more exciting.

Because the profit margin on each trade is much smaller when scalp trading, scalpers are often protected by large losses incurred from a single trade or security. Whereas swing trading often employs a “go big or go home” mentality, scalp trading is comprised of hundreds of tiny transactions that may not snowball into larger losses as easily.

What Type of Trading Is Most Profitable?

Investors are often best suited to practice the style of trading that best suits their preference. Patient, inexperienced traders that are not interested in continually tracking stock charts are more likely to be successful swing trading. Meanwhile, investors that prefer quicker action, have larger amounts of capital to deploy, or have greater technical analysis abilities may be better suited to scalp.

Can I Swing Trade or Scalp Trade for a Living?

Yes, both trading techniques can be done full-time, and you can earn a livelihood swing trading or scalp trading. Make sure you are aware with the FINRA laws that govern your margin account, equity requirements, and trading capacity.

Investopedia does not provide tax, investment, or financial advice. The material is offered without regard for any individual investor’s investing goals, risk tolerance, or financial circumstances, and may not be appropriate for all investors. Investing entails risk, including the possibility of losing money.

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