Scalping vs. Swing Trading: What's the Difference?

Last Updated July 23rd 2021
8 Min Read

Trading is a challenging career for more reasons than one. Although several people participate in the stock market as investors or as traders, trading must be undertaken cautiously and with calculated risks. Some people consider trading to get rich quickly. However, trading and investing are not ways to get rich quickly.

Contrary to common perception, they are generally profitable only if engaged on a long-term basis. Although you can make profits in the short term while trading, there are chances that you will lose money too. But an experienced trader undertakes risk management to ensure higher profitability and less loss.

Types of traders

One of the common classifications of traders is based on the time for which the stock is held. The holding period can range from few seconds, days, months and even years. Some of the popular trading strategies are day trading, swing trading, position trading, and scalping. You should choose a style that suits your temperament if you hope for long-term success.  

In this article, we will try to differentiate between scalping and swing trading so that you can choose the best strategy to suit your goals.

Key Points

  • Scalping and swing trading are two popular short-term investing strategies used by traders.
  • Scalping consists of making hundreds of trades daily in which positions are held very briefly, sometimes only a few seconds.
  • Profits are small in scalping and the risks are low too.
  • Swing trading utilises technical analysis and charts to follow and earn a profit off trends.
  • Swing trading time frame is intermediate, ranging from a few days to a few weeks.

Let us now consider these two strategies in detail.

Scalping Trading

Traders use the scalping strategy to profit from minor changes that occur in intra-day trade price movement. Scalping would require you to frequently enter and exit throughout the trading sessions to earn profits.

Scalping is often considered a sub-type of day trading as it involves multiple trades of extremely short holding periods ranging from a few seconds to minutes. As the positions are held for such brief periods, the gains on a particular trade will be small. As a result, scalpers perform numerous trades often running into hundreds on an average trading day to build their profit. The limited exposure to the market in terms of time reduces the risk in scalping.

If you wish to enter scalping, you will have to be quick and may be unable to stick to a particular pattern. You’ll see scalpers going short on one trade and long in the next. As a scalper, you are always on the lookout for small opportunities. You will have to work around the bid-ask spread – that is, buy on the bid and sell at the ask, to exploit the spread for profit. There will be numerous opportunities to exploit the small moves even in a still market. Small moves are more common than large ones and hence the opportunity to earn profit is higher.

Traders follow short period charts if they are into scalping. You’ll find several short period charts such as one-minute charts and five-minute charts. You can also follow the transaction-based tick charts to research price movements and take calls accordingly.

Adequate liquidity is a requisite for compatibility with a high frequency of scalping. As a scalper, you’ll need access to accurate data and the ability to trade rapidly based on the quote system or live feed you use. Scalping involves frequent buying and selling, and hence there are increased trading costs. Direct broker access is preferable because the higher the commission, the lesser the profit.

Furthermore, scalping is the best option if you can devote time to the markets, stay focused, and act quickly. It is often said that impatient people make good scalpers because they are likely to exit from trade as it becomes profitable. In short, scalping is an ideal strategy if you can handle stress, make quick decisions, and follow it up with appropriate action.

Swing trading

As mentioned earlier, your timeframe determines what trading style is best for you. As you’ve seen above scalpers perform hundreds of trades every day and must stay attached to the markets. But swing traders make fewer trades and need not be glued to the market as they can afford to check in less frequently.

The key to successful swing trading is identifying the trend and playing within it. So, a swing trader would pick a strongly-trending stock after a correction or consolidation, and right before it’s ready to rise again, exits the market after pocketing some profit. Swing traders repeatedly indulge in such buying and selling methods to reap gains.

If the stocks fall through support, a swing trader will move to the other side by going short. Often, swing traders are “trend followers”. Hence, if there is an uptrend, swing traders go long, and if the trend is towards the downside, they will go short. Swing traders usually remain open for a period ranging from a few days to a few weeks. Sometimes they are open for months as well. However, typically a swing trade lasts only a few days.

When we consider the timeframes, potential returns, and the patience needed, swing trade lies between day trading and trend trading. Swing traders utilise technical analysis and charts that display price actions to help them locate the best entry and exit points for profitable trades. They study resistance and support, occasionally use Fibonacci extensions along with other patterns and technical indicators. A certain degree of volatility is beneficial for swing trading as it gives rise to better trading opportunities.

If you get into swing trade, you must remain vigilant for potentially greater gains by indulging in fewer stocks, which helps to keep the brokerage fees low.

Swing trading is best suited for those who are unable to stay glued to the markets or keep a minute-by-minute track of market movements. It is a good choice for part-time traders who pop in at times to check what’s happening during their work intervals. Pre-market and post-market reviews are critical to successful swing trading, along with perseverance with overnight holdings. As such, it’s not ideal for those who become anxious in such situations.

Here are the main differences between scalping and swing trading in a nutshell:

  • Holding period - for scalping it ranges from a few seconds to minutes and never overnight. The holding period for swing trade could range from a few days to weeks, or even months occasionally. It is usually held for few days.
  • The number of trades – there can be hundreds of trades during a day in scalping. In swing trade, the number of trades is limited to a few
  • Chart – scalping uses tick chart or 1 to 5-minute charts while swing trade uses daily or weekly charts
  • Trader traits – scalper must be vigilant and perhaps a little impatient too. A swing trade must be precise and exercise great patience to understand trends
  • Decision-making – scalping requires rapid decision making whereas swing trading needs fluid decision-making times.
  • Strategy – scalping is an extreme strategy while swing trade is moderate
  • Stress level – scalping can be highly stressful whereas the stress levels are moderate in swing trade
  • Profit – profits are made from multiple small trades in scalping. In swing trade, larger profits are derived from fewer trades   
  • Tracking – scalping needs constant monitoring throughout the trading session while swing traders need to exercise only reasonable monitoring like up-to-date info on news and corporate events
  • Suitability – scalping isn’t the best choice for novice traders. Swing trading is suitable for all, types of traders ranging from beginners to moderate to experts

Read More: Complete Swing Trading Guide

Conclusion:

There is no single perfect trading strategy. Often it is a combination that works. However, you must choose a trading strategy that suits your skill, temperament, account size, experience, and personal risk tolerance, among others.

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