There is no “best method” of stock trading. There is no “holy grail”. There are pros and there are cons, just like with everything else in life. There are good things about swing trading and there are bad things. Same goes for day trading.
The key is choosing what method works best for you — and of course, yields the most profit consistently. For most people, day trading really isn’t a realistic option due to the large time investment. Can you imagine yourself glued to your chair for 8 hours of the day just looking at a computer screen?! YIKES!!
And yes, I realize that many people have careers in which that is ALL THEY DO all day long; so it doesn’t really seem all THAT bad. However, it pays to remember that those people are guaranteed a paycheck at the end of the day. Day traders are not and can walk away from the chair down $100, $500, or even $5000+!
I’d say that’s a rather BIG distinction, wouldn’t you?
- You Are Only Holding a Position For a Few Days (1 to 7 Days On Average).
- Patience is Required for The Patterns to Play Out.
- Your Entry Points Need Not Be Perfect For You To Profit Consistently.
- You Don’t Need to Know Anything Whatsoever About A Companies Fundamentals Before Investing.
- You Need a Good, If Not Great, Grasp of Technical Analysis.
- You Can Be Blindsided And Lose Big By News & Market Corrections.
- Setting Of Clear Stop Loss and Profit Goals Via Conditional Orders.
- Once You’re In a Trade, You Can Carry on With Your Normal Day to Day Life Without Having to Check Every Few Minutes.
- Commission Cost Of Each Trade Is Of Little Important Given Your The Holding Time and Typical Profit Amount.
- Holding Positions Overnight Means You Are Susceptible to Earnings, Announcements, Industry News, Analyst Recommendations, Etc. (Nothing Worse Than a Next Morning Gap Down of 10% to 25%)
- Minimum Account of $25,000 For Most Brokerages To Engage In Day Trading. (This Eliminates Most People Right Off the Bat)
- Just Like Swing Trading, You Don’t Need to Know Anything About the Company.
- In Trades For Minutes, Hours, or Sometimes Just Seconds. Average Hold Times Is MINUTES.
- Instant Gratification (or Instant Pain).
- Must Be Precise With Your Entries and Exits to Profit Consistently.
- The Spread Can Have a Large Impact On Profits & Losses.
- Must Constantly Scan For News and Upcoming Opportunities.
- Stop Loss Orders Are Largely Useless for Day Traders.
- Must Be Able to Act Quickly to Breaking News or Your Scan Alerts.
- Must Have Multiple Forms of Initiating Trades. (What If Your Internet Goes Out and the Stock Starts to Tank With No Means to Sell?)
- You Are Largely Not Affected By Market News.
- You Can Be A Bull or A Bear Every Day, and You Can Switch At Will With the Market.
- Commission Cost of Each Trade is More of An Issue. More Trades = More Commission Costs.
- Less Profit Per Trade. While Swing Traders Aim For as Much As 5 to 20 Percent, Day Traders Typically Aim For Wins of a Few Pennies (Lower than 1%).
- Urge To Overtrade is Stronger. You’re a Day Trader, So You MUST Trade… Even If Those Trades Are Poor.
- Cascading Losses. Swing Traders Can Wait Days for Trade Set-ups. Emotions Subside By The Time a New Trade Presents Itself. Day Traders Throw Themselves Back Into the Gauntlet With Fresh Losses Still On Their Minds.