Which 1 2 3 swing forex trader of these popular trading styles makes sense for you? The time frame on which a trader opts to trade can have a significant impact on trading strategy and profitability.
Day traders open and close multiple positions within a single day, while swing traders take trades that last multiple days, weeks or even months. These two different trading styles can suit various traders depending on the amount of capital available, time availability, psychology and the market being traded. One trading style isn’t better than another and it really comes down to which style suits a trader’s personal circumstances. Some traders opt to do one or the other, while others may be day traders, swing traders, and buy-and-hold investors all at once.
5 percent of her capital on each trade. If she loses, she’ll lose 0. Also, assume she wins 50 percent of her trades. If she makes six trades per day, on average, she will be adding about 1. 5 percent to her account balance each day, less trading fees. Making even 1 percent a day would grow a trading account by more than 200 percent over the course of the year, uncompounded. On the flip side, while the numbers seem easy to replicate for huge returns, nothing’s ever that easy.
Making twice as much on winners as you lost on losers, while also winning 50 percent of all the trades you take, doesn’t come easily. You can make quick gains, but you can also rapidly deplete your trading account through day trading. Swing trading accumulates gains and losses more slowly than day trading, but you can still have certain swing trades that quickly result in big gains or losses. Assume a swing trader uses the same risk management rule, and risks 0. 5 percent of his capital on each trade with a goal of trying to make 1 percent to 2 percent on his winning trades. 5 percent on average for winning trades, losing 0. He makes six trades per month and wins 50 percent of those trades.
In a typical month, the swing trader could make 3 percent on his account balance, less fees. Over the course of the year, that comes out to about 36 percent, which sounds good but offers less potential than a day trader’s possible earnings. These example scenarios serve to illustrate the distinction between the two trading styles. Altering the percentage of trades won, the average win compared to average loss, or the number of trades will drastically affect a strategy’s earning potential.
As a general rule, day trading has more profit potential, at least on smaller accounts. As the size of the account grows it becomes harder and harder to effectively utilize all the capital on very short-term day trades. Day traders may find their percentage returns decline the more capital they have. Swing traders have less chance of this happening.
Day trading and swing traders can start with differing amounts of capital depending on whether they trade the stock, forex or futures market. 20,000 if looking to draw an income from trading. 7,500, and more capital would be even better. These amounts depend on the futures contract being traded. Day trading some contracts could require much more capital, while a few contracts, such as micro contracts, may require less. The amount needed depends on the margin requirements of the specific contract being traded.