SHOULD YOU DAY TRADE OR SWING TRADE?

The Forex Market is one of the most attractive Financial Markets that has the potential to provide traders with a real source of Long-Term Wealth. Turning this dream into a reality is the goal of all Retail Traders and with the vast range of trading techniques that are available to us, it is only a matter of time before this goal is realized. Nevertheless, before this can take place, we will first have to make a very important decision. Will I dedicate my life to being a Day Trader or a Swing Trader?

At first, this decision might appear to be a very easy one to make. After all, the time and dedication that goes into finding the right technique and practicing it several times appears to be the most difficult hurdle to overcome. However, I believe that the decision to trade the markets daily or on a weekly basis will determine your choice of methodologies and ultimately your rate of returns and profitability.

Day Trading is the most widely used approach to trading this challenging market. It involves targeting the daily price movements of exchange rates on the smaller time frames using various Statistical Indicators and Price Action strategies. Since some of the most liquid Currency Pairs can move by up to 100 Pips within a few hours, traders can be very successful if they can capture most of these each day. Despite this potential for large gains in a very short period of time, however, there are a few drawbacks that can adversely affect profitability.

Many of these daily movements can be quite erratic. A rally in the EURO USD by 30 Pips might appear to be the direction to trade for the day. However, within a few minutes, this can be erased by a sharp reversal as the market reacts to a tremendous improvement in the US Non-Farm Payroll numbers. In addition, the short time in between trades can make it difficult for us to recover from losses before moving on to the next trade.

Swing Trading is an alternative form that many traders have opted for to address many of the challenges they faced as Day Traders. The patterns and price movements on the larger time frames are a lot more stable and predictable. Gains per trade can be much larger and traders have more time in between opportunities to remain objective following losses. As good as this approach may be, Swing Traders do have to face a few difficulties as well.

The holding period for these traders is longer than that of Day Traders. Many of the profitable trends on the larger time frames require up to 7 days or more to reach their targets. Although a week can fly by in the blink of an eye in most aspects of our lives, it can seem like an eternity for those accustomed to Day Trading. There is also the issue of not having many trades to choose from each week. Since these movements do not take place as often as with Day Trading, a much greater level of patience is demanded until they finally appear.

These issues are just a handful of those that go into a retail trader’s decision matrix. Time Zone differences, work schedule and family commitments are also important “real world” factors that have to be seriously considered as well. Once these challenges are resolved, however, we will have moved one step closer to becoming successful traders that are financially independent - forever.