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What is Intraday trading, and how it’s different from Swing trading

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In this article, I will explain intraday trading and how it differs from swing trading, and most importantly what are the things you need to understand to get started your stock trading career. Intraday trading is also referred to as day trading in the stock market.

Each market participants has his or hew own style to participate in the market. Based on the kind of risk they are willing to take in the market and return expected, they can be categorized as either a trader or investor. A trader usually has short term view in the market.

We have different type of traders: Positional day trader, Scalper and Swing trader. In all the cases, traders try to profit from stock’s short term price movements.

Many retail traders make a living from trading stocks and other securities. Both intraday and swing trading can help you to make money from the comfort of your home. 

Now let’s understand intraday or day trading in the stock market.

What is intraday or day trading

Intraday is a term used by traders to refer to the time period of a trading session/day, from when the market opens to when it closes.

In Intraday trading, traders hold their position in securities only for a day, this means they buy and sell one or more common stocks or any other securities within one day trading session. This means, traders buy and sell financial assets such as stock, options, currencies, with the goals of making a profit in the same day.

At the end of every day, these traders close their position and start all over again the next day. They do not hold their position overnight or more than a day, that is why they are called day traders.

Intraday or Day trading is a profession, very much like Doctors, Chartered Accountants, Company Secretaries and Law. You require the right education, tools, discipline, patience and practice.

These traders always have a plan for what they will trade, when to enter and exit a position, how to protect profit, and most importantly how to minimize loss of capital.

The main types of day trading markets are stock, currencies, commodities, futures and options.

How Intraday trading is different from Swing Trading

We have already discussed swing trading in our last article, you can read it “swing trading in the stock market“.

In swing trading, you hold stocks over a period of time, which can be for a day or for weeks.

Both intraday and swing trading has its own advantages and disadvantages. Traders should choose the one that best suits their skills, experience, preference, and lifestyle.

In this part of the article, we will restrict our discussion to understand the difference between intraday and swing trading.

Here are the major differences;

  • Based on a technical analysis and charting system, day traders enter and exit a number of trades in a single day. Whereas swing traders based on expected swing in stocks and other securities, hold their position for a few days to weeks. This means day traders do not keep any securities overnight, whereas swing traders do.
  • A day trader is required to be a full-time trader as he/she has to sit for the whole day finding and monitoring trades and markets. A swing trader does not necessarily make trading as a full-time career, he/she can work as a part-time swing trader in addition to the full-time day job.
  • Margin requirements in case of swing trading are higher in comparison to intraday as the trader needs to hold the position for more than a day.
  • You can start swing trading with just one computer and conventional indicators. In the case of intraday trading, you need to have the state-of-the-art technology of day trading.
  • Intraday traders are not required to do a fundamental analysis of stock as entry and exit points decided purely on the basis of technical analysis. Swing traders are required to apply a combination of fundamental and technical analysis instead of relying only on technical analysis.
  • As a swing trader you need to understand how the overall market is going to perform in the near future, you have to find out whether the market is bullish, bearish or neutral. A day trader need not necessarily know about the market direction in the near future. Day trader time span is measured in minutes, rarely in hours.
  • Professional swing traders look for solid companies that they know won’t lose their entire value overnight. In general, day traders can trade anything with enough liquidity as you don’t care what happens after the market closes.

Successful day traders pick one or two markets and concentrate on those to maintain focus. Before getting into a trade, these successful traders know when they are going to trade, what their stock will be, and most importantly when they are going to get out of their position.

Traders rarely place all of their money on one trade. Instead, they put a portion of their capital into a trade and keep rest to make other trades when a new opportunity arises.

Remember, when you trade, the market does not care who you are, what you are doing, what your goals are, and how you want to achieve it.

Here are certain popular indicators used by day traders:

  • Fibonacci
  • Price Patterns
  • Average true range (ATR)
  • Bollinger Bands
  • Commodity Channel Index (CCI)
  • ADX
  • Relative Strength Index (RSI)
  • Moving averages
  • VWAP
  • Pivots
  • Volume
  • Support and resistance
  • Trend Line

Common misconception about day trading

One of the biggest common misconceptions that people have about day trading is that it’s a very good strategy to get rich quickly. 

They think that day trading is all about buy low, sell high or buy the dip, sell the rally.

Please note, day trading is not that simple as it is quite often published in social media. You require a strong understanding of the market moves within your trading timeframe, highest level of concentration, discipline and patience.

In day trading , you will be competing with a massive crowd of traders, some experienced and some novice, some working for big institutions and some working for big firms. Therefore, take it as a serious business.

Please note, trading in the stock market is very risky and is not ideal for new traders. If day trading is that simple, then everyone would be a successful trader. Profits in intraday trading do not come from reading books or taking tips from experts, profit can come with practice and right education. Unexpected market movements could result in sudden and significant losses.

Day trading isn’t investing, it does not mean that day traders don’t invest in stocks and other financial assets. Most of the renowned investors are day traders. They use part of their trading profits on a regular basis to buy stocks.

Depending on the traders style, day trading can be classified as scalping, where assets are only held for few seconds or minutes and Intraday swing trading, where the asset may be held throughout the trading day. In both the cases, traders analyze price movements and try to identify patterns that can help them predict future price movements.

Candlestick Patterns can help day traders in identifying entry, exit and stop loss of their trades. Here is a list of the most important Canldestick Patterns to recognise reversal of a trend;

Be sure you practice identifying and trading these candlestick patterns on a demo account before trading them with real money.

In addition to the disclaimer below, please note, this article is not intended to provide investing or trading advice. Trading in the stock market and in other securities entails varying degrees of risk, and can result in loss of capital. Most investors and traders lose money. Readers seeking to engage in trading and/or investing should seek out extensive education on the topic and help of professionals.