Last Updated on 10 August, 2021 by
Swing trading and scalping are two of the different trading styles that suit different types of traders. While they are both active forms of trading, as against passive investing, what is the difference between them?
There are many ways swing trading differs from scalping, but the key difference lies in the types of trades, the duration of the trades, how the signals are generated, the types of charts used, and many more. The thing is, swing trading and scalping suit different types of traders.
In this post, we will explain what the two trading styles mean and then go ahead to discuss the key areas where they differ from each other.
Swing trading vs. scalping: What do they mean?
Swing trading is a style of trading that tries to profit from medium-term price moves, which are the normal price swings you see on the daily timeframe. The aim of any swing trade is to ride the main price swings, one swing at a time. Normally, those swings often last from a few days to some weeks, and the key thing is to enter a trade at the beginning of a new swing so that you can make a reasonable profit before the swing ends. There many technical analysis strategies traders use to identify when a new swing is forming in order to place a new trade or close an existing one.
Scalping, on the other hand, is a high-frequency trading method where the trader tries to profit from small price moves that occur in the lowest trading timeframes, such as the 5-minute, 3-minute, and 1-minute timeframes, as well as the tick chart. When scalping, the trader must have a strict exit strategy so that one big loss doesn’t wipe out all many small profits made. Scalping can be based on swift technical analysis or the price moves associated with the immediate effects of a news report. With the advent of trading robots, scalping is mostly done with trading algorithms due to its fast-paced nature.
We will discuss the difference between swing trading and scalping under the following headings:
In swing trading, you hold your trades overnight. Usually, the trades can stay open for a few days but can last up to some weeks, depending on when the price swing you are trying to ride ends.
For scalping, the idea is to hop in and hop out swiftly with as much profit as you can get in the shortest possible time. The trades normally last from a few seconds to a few minutes and never stays overnight.
The idea of swing trading is to ride the individual price swings on the daily timeframe, so most analysis and trading is done on the daily timeframe, and sometimes, on the 4-hourly timeframe.
Scalping is done on the lowest intraday charts, such as the 5-minute, 3-minute, and 1-minute timeframes. Scalpers also use the tick chart.
Swing trading is suitable for people who are patient and like taking time to think things through before making a trading decision, while scalping is ideal for those who like to work in a fast-paced environment and can make quick decisions in the heat of the moment. However, with algorithmic trading, anyone can set up a scalping trade robot.
Number of trades
Swing traders only get to find a few trade setups in a week. Some days, they may not even see any tradable opportunity. Scalpers, on the other hand, may make up to a hundred trades in a day, as their trading strategy shows trade signals every few minutes because they trade off the lowest timeframes.
Swing trading requires simple trading strategies that can be implemented with human discretion. The trading approach is generally slow. For scalping, however, the strategy can be complicated and requires fast execution to take advantage of the opportunity in time. Also, it requires strict risk control to protect the small profits.
Profit expectation per trade
The profit expectation in each trade is higher in swing trading than in scalping. Depending on the stock being traded, a swing trader might be looking for a few dollars per share traded, while a scalper normally looks to make a few cents per share per trade. Scalpers only look to make small profits which can add up over multiple trades.
Swing traders take their time in making trading decisions. They trade on the daily timeframe which prints new data at the end of each trading day, so they have a full day to consider the implication of the data before new data are printed. Scalpers trade on the lowest timeframe and can have new data printed every minute, so the decision-making time is short.
The time commitment in swing trading is very small. A swing trader can even do their trading part time while keeping his full-time job.
Scalping, on the other hand, requires so much time commitment, as the trader has to constantly monitor his trading screen all through the trading session.
Swing trading is quite easy if you know what to look for and follow your trading plan strictly. The stress level associated with swing trading is not much. Scalping, however, is associated with high stress level as your brain is analyzing new data almost every minute.
Swing trading is suitable for any type of trader because it is not fast-paced. For this reason, new traders are advised to start with swing trading. Scalping is only suitable for highly experienced traders with the right personality for working in a fast-paced environment, unless when the trading is automated.
While swing trading can be automated, many swing traders manually implement their strategies because swing trading is easy to implement manually. Scalping, on the other hand, is very difficult to do manually. Hence, most scalpers make use of trading robots with various algorithms. Artificial Intelligence is also making algorithmic trading more efficient.
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Swing trading differs from scalping in a lot of ways, and we have discussed some of them in this post.
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