INTRADAY TRADING OR DAY TRADING 
AND SWING TRADING
  • TABLE OF CONTENTS

  • What is Intraday Trading?

  • The Basics of Intraday Trading

  • Advantages and Disadvantages of Intraday Trading

  • Pros

  • Cons

  • What Is Swing Trading?

  • Important points for swing trading

  • Understanding Swing Trading

  • Pros

  • Cons

  • IntraDay Trading vs. Swing Trading

  • Swing Trading Tactics

  • FAQ

What is Intraday Trading?

Intraday trading involves buying and selling stocks within the same trading day. Here stocks are purchased, not to invest, but to earn profits by harnessing the movement of stock indices. Thus, the fluctuations in the prices of the shares are monitored to earn profits from the trading of stocks.

An online trading account is set up for intraday trading. While doing intraday trading, you need to specify that the orders are specific to intraday trading. As the orders are squared off before the end of the trading day, it is also called as Intraday Trading.

 

The Basics of Intraday Trading


Intraday is often used to refer to the new highs and lows of any particular security. For example, "a new intraday high" means the security reached a new high relative to all other prices during a trading session. In some cases, an intraday high can be equal to the closing price.


Traders pay close attention to intraday price movements by using real-time charts in an attempt to benefit from short-term price fluctuations. Short-term traders typically use one-, five-, 15-, 30- and 60-minute intraday charts when trading within the market day. Typically, intraday scalping uses one- and five-minute charts for high-speed trading. Other intraday trading strategies may use 30- and 60-minute charts for trades that have hold times of several hours. Scalping is a strategy of transacting many trades per day that hopes to profit from small movements in a stock's price. The intraday trader may hold their positions for a longer period but still operate under high risks.

Intraday trading is riskier than investing in the regular stock market. It is important, especially for beginners, to understand the basics of such trading to avoid losses. Individuals are advised to invest only the amount they can afford to lose without facing financial difficulties.

Advantages and Disadvantages of Intraday Trading


The most significant benefit of intraday trading is that positions are not affected by the possibility of negative overnight news that has the potential to impact the price of securities materially. Such news includes vital economic and earnings reports, as well as broker upgrades and downgrades that occur either before the market opens or after the market closes.

Trading in an intraday basis offers several other key advantages. One advantage is the ability to use tight stop-loss orders—the act of raising a stop price to minimize losses from a long position. Another includes the increased access to margin—and hence, greater leverage. Intraday trading also provides traders with more learning opportunities. 

However, with every silver lining, there are also storm clouds. Disadvantages of intraday trading include insufficient time for a position to see increases in profit, in some cases any profit at all, and increased commission costs due to trading more frequently which eats away at the profit margins a trader can expect.

Pros
Positions are unaffected by risk from overnight news or off-hours broker moves.

Tight stop-loss orders can protect positions.

Regular traders have access to increased leverage.

Numerous trades increase hands-on learning experience.
 

Cons
Frequent trades mean multiple commission costs.

Some assets are off-limits, like mutual funds.

There may not be sufficient time for a position to realize a profit before it has to be closed out.

Losses can mount quickly, especially if margin is used to finance purchases.

What Is Swing Trading?
Swing trading is a style of trading that attempts to capture short- to medium-term gains in a stock (or any financial instrument) over a period of a few days to several weeks. Swing traders primarily use technical analysis to look for trading opportunities. These traders may utilize fundamental analysis in addition to analyzing price trends and patterns.

Important points for swing trading


Swing trading involves taking trades that last a couple of days up to several months in order to profit from an anticipated price move.
Swing trading exposes a trader to overnight and weekend risk, where the price could gap and open the following session at a substantially different price.
Swing traders can take profits utilizing an established risk/reward ratio based on a stop loss and profit target, or they can take profits or losses based on a technical indicator or price action movements.

 


Understanding Swing Trading


Typically, swing trading involves holding a position either long or short for more than one trading session, but usually not longer than several weeks or a couple of months. This is a general time frame, as some trades may last longer than a couple of months, yet the trader may still consider them swing trades. Swing trades can also occur during a trading session, though this is a rare outcome that is brought about by extremely volatile conditions.


The goal of swing trading is to capture a chunk of a potential price move. While some traders seek out volatile stocks with lots of movement, others may prefer more sedate stocks. In either case, swing trading is the process of identifying where an asset's price is likely to move next, entering a position, and then capturing a chunk of the profit if that move materializes.


Successful swing traders are only looking to capture a chunk of the expected price move, and then move on to the next opportunity.

 Swing trading is one of the most popular forms of active trading, where traders look for intermediate-term opportunities using various forms of technical analysis.


Many swing traders assess trades on a risk/reward basis. By analyzing the chart of an asset they determine where they will enter, where they will place a stop loss, and then anticipate where they can get out with a profit. If they are risking $1 per share on a setup that could reasonably produce a $3 gain, that is a favorable risk/reward ratio. On the other hand, risking $1 to make $1 or only make $0.75 isn't quite as favorable.


Swing traders primarily use technical analysis, due to the short-term nature of the trades. That said, fundamental analysis can be used to enhance the analysis. For example, if a swing trader sees a bullish setup in a stock, they may want to verify that the fundamentals of the asset look favorable or are improving also.


Swing traders will often look for opportunities on the daily charts and may watch 1-hour or 15-minute charts to find a precise entry, stop loss, and take-profit levels.

Pros
It requires less time to trade than day trading.

It maximizes short-term profit potential by capturing the bulk of market swings.

Traders can rely exclusively on technical analysis, simplifying the trading process.

Cons
Trade positions are subject to overnight and weekend market risk.

Abrupt market reversals can result in substantial losses.

Swing traders often miss longer-term trends in favor of short-term market moves.

IntraDay Trading vs. Swing Trading


The distinction between swing trading and day trading is, usually, the holding time for positions. Swing trading, often, involves at least an overnight hold, whereas day traders close out positions before the market closes. To generalize, day trading positions are limited to a single day while swing trading involves holding for several days to weeks.

By holding overnight, the swing trader incurs the unpredictability of overnight risk such as gaps up or down against the position. By taking on the overnight risk, swing trades are usually done with a smaller position size compared to day trading (assuming the two traders have similarly sized accounts). Day traders typically utilize larger position sizes and may use a day trading margin of 25%.

Swing traders also have access to margin or leverage of 50%. This means that if the trader is approved for margin trading, they only need to put up RS.25,000 in capital for a trade with a current value of Rs.50,000, for example.

Swing Trading Tactics
A swing trader tends to look for multi-day chart patterns. Some of the more common patterns involve moving average crossovers, cup-and-handle patterns, head and shoulders patterns, flags, and triangles. Key reversal candlesticks may be used in addition to other indicators to devise a solid trading plan.

Ultimately, each swing trader devises a plan and strategy that gives them an edge over many trades. This involves looking for trade setups that tend to lead to predictable movements in the asset's price. This isn't easy, and no strategy or setup works every time. With a favorable risk/reward, winning every time isn't required. The more favorable the risk/reward of a trading strategy, the fewer times it needs to win in order to produce an overall profit over many trades.

Frequently Asked Questions

  • What are the "swings" in swing trading?

Swing trading tried to identify entry and exit points into a security on the basis of its intra-week or intra-month oscillations, between cycles of optimism and pessimism.

  • How does swing trading differ from day trading?

Day trading, as the name suggests, involves making dozens of trades in a single day, based on technical analysis and sophisticated charting systems. Day trading seeks to scalp small profits multiple times a day, closing out positions overnight. Swing traders do not close their positions on a daily basis and instead may hold onto them for weeks or months, or even longer. Swing traders will also tend to incorporate both technical and fundamental analysis.

  • What are some indicators or tools used by swing traders?

Swing traders will use tools like moving averages overlaid on daily or weekly candlestick charts, momentum indicators, price range tools, and measures of market sentiment. Swing traders are also on the lookout for technical patterns like the head-and-shoulders and cup-and-handle.

  • Which types of securities are best-suited for swing trading?

While a swing trader can enjoy success in any number of securities, the best candidates tend to be large-cap stocks, which are among the most actively traded stocks on the major exchanges. In an active market, these stocks will often swing between broadly-defined high and low points, and the swing trader will ride the wave in one direction for a couple of days or weeks and then switch to the opposite side of the trade when the stock reverses direction. Swing trades are also viable in actively-traded commodities and forex markets.