Scalping and swing trading both are short-term trading methods that are practiced to pocket profit from price movement. If you are new to equity market trading, then learning the differences between scalping and swing trading will give you better control over the risk-reward situation. Once you get clarity on each, you can choose a trading strategy that best suits your temperament. In this article, we will discuss scalping vs. swing trading and the pros and cons of each.
But before we discuss the processes in detail, let’s brush up our knowledge on traders. Traders enter the market to leverage from price differences and don’t look for long-term investing opportunities. They are more interested in small windows of profit. So, they make frequent transactions that can last between a few minutes to a few hours or a few days. Often, they will square off their position before the day is closed in intraday trading.
These traders use multiple trading strategies to buy and sell stocks in quick successions, depending on market movement. Both scalping and swing trading fall into their spectrum of approaches.
Scalping vs. Swing Trading
Both scalping and swing trading are short-term trading techniques employed by traders. Scalping involves multiple transactions of short duration; each can last between a few seconds and a few minutes to gain from price movement. It may limit your profit but also helps by reducing your risks from long-term exposure.
Swing traders eye on long-term profit. Instead of making several small transactions, they hold onto their position for one day or a few days till the market reaches their desired profit level. It is midway between day trading and long-term investment. It demands patience, confidence, and understanding of the market sentiment to benefit from swing trading. If you are a new trader, you may initially struggle with the swing trading strategy.
Swing traders make fewer transactions than scalp traders but usually gain a higher profit margin.
Picking Your Style
So, are you a swing trader or scalp trader? It might not be easy to answer the question. It is also tricky to stick to a style when you are trading in real-time. Both scalping and swing trading have unique sets of pros and cons to suit traders’ sentiment.
Benefits And Challenges Of Scalping
Scalping is best suited for high-speed traders – they enter a short position with one stock and a long position with the next one in quick succession. Scalp traders are involved in multiple short duration and small volume transactions.
- It involves swift transactions, lasting for a short period
- Trend changes do not impact scalping
- It helps you beat significant losses by eliminating chances of market reverse
- Don’t require long -term trend analysis, can be done on-the-spot market impetus
- Traders use indicators to gauge market movements on the fly
- Scalp traders work in bid-ask spread; they exploit the spread for profit
But there are few challenges or cons in trading using scalping techniques.
- It needs discipline and quick decision-making capacity to optimize on a short window of profit
- Novice traders may struggle as it requires minute monitoring of market movement
- Presence of a large number of traders can put pressure on your profit, and one loss can outweigh previous gains
- Some brokers don’t allow scalping on their platform
In swing trading, the window is much broader, of one day or more days. It requires a different set of mind-set to succeed in swing trading. For a quick understanding, we have listed the benefits and challenges below.
- You can use various trading tools to understand market movement and minimise risk
- It gives you more opportunity to explore the market for better deals
- smaller stop-loss allows swing traders to bet on larger stakes
On the flip side,
- Swing trading demands calm nerves and a better technical understanding of the market
- Exposes you to higher risk due to the longer duration involved
- Suit moderate to advanced traders better since it requires abilities to use technical trading tools and charts
In choosing between swing trading vs. scalp trading, consider your investment objective and time to fix your strategy. Scalping demands more devotion to follow every market movement and trade quickly. On the other hand, swing traders aim for higher profit and base their decisions on market movements over time. It’s, however, smart to have more than one strategy up your sleeve to make flexible choices depending on market conditions.