Swing trading and position trading are two popular trading strategies employed by investors and traders in the financial markets. While both strategies aim to generate profits from price movements in various assets, they differ in terms of time horizons, trading frequency, and overall approach. Let’s take a closer look at each strategy:
Table of Contents
Let’s see the difference between the two:
Swing Trading
Position Trading
Time Horizon
Swing trading involves holding a position for a short to intermediate term, typically ranging from a few days to a few weeks. Traders aim to capture short-term price swings or “swings” within the broader trend.
Time Horizon
Position trading involves holding a position for an extended period, ranging from several weeks to months or even years. Traders aim to benefit from larger price movements and long-term trends.
Trading Frequency
Swing traders actively monitor the markets and may execute multiple trades within a given week or month. In fact traders with less patience may choose Swing trading as it is better than active monitoring of the market, gives breathing room and gives exits within a week or 2 mostly by hitting stop loss or target.
Trading Frequency
Position traders do not actively trade as frequently as swing traders. They focus on capturing significant market moves and may only execute a few trades per year. However, Positional traders need a lot of patience. Perhaps investors who would put money in a stock and forget or get busy with some other work would be ideal for position trading.
Approach
Swing traders use technical analysis and chart patterns to identify potential entry and exit points. They often rely on trends in stock and try to take positions in the trending stocks. Typically if a trending stock is on a halt like has gone sideways on a smaller timeframe but bullish trending on a higher timeframe are ideal candidate.
Approach
Position traders often rely on technical analysis on a higher timeframe. They also evaluate the underlying value and potential growth prospects of a security. They consider factors such as company financials, industry trends, and macroeconomic conditions to make investment decisions.
Risk Management
Swing traders typically set stop-loss orders to protect against significant losses and employ profit targets to secure gains. However, they play on time of the day. For instance last 45 min of the day are crucial or early opening time of the day is crucial for Indian Stock Market.
Risk Management
Position traders generally have a longer-term perspective and may employ wider stop-loss orders to allow for greater market volatility. They also closely monitor their positions and adjust their strategies only if there are changes in the underlying fundamentals.
Conclusion
Choosing between swing trading and position trading depends on various factors, including personal preferences, risk tolerance, time commitment, and trading capital. Swing trading is more suitable for individuals who prefer shorter timeframes and are comfortable with frequent trading activity. Position trading, on the other hand, appeals to those who have a longer-term view, prefer less frequent trading, and are willing to tolerate potential market fluctuations.
It’s worth noting that both strategies require careful analysis, risk management, and discipline. It is important to develop a trading plan, define entry and exit criteria, and adapt your strategy based on changing market conditions. Additionally, traders should consider the transaction costs, such as commissions and spreads, associated with their chosen strategy
FAQs
Is Positional Trading Better than Swing Trading?
Honestly the answer is in the individual’s preference and style. If investor is open to put the money and forget it for weeks together then positional trading is better for him/her compared to swing trading. However if investor has to earn monthly income from trading then swing trading can come to rescue him/her.
Is Swing Trading more profitable?
It depends! If the trader has an understanding of whether at the moment the stock is in a good position to invest and as soon as it hits the target he/she exits similarly on hitting stop loss. Then there is the possibility that swing traders can maintain better profits. But that doesn’t mean positional traders are less profitable. Their one right bet can give them multifold returns. But one of the most critical aspects where positional trader wins over swing traders is the cost of trading. Swing traders will always pay higher brokerage, tax etc kind of costs due to regular in and out in comparison to positional trader.