10.11.2022

Swing Trading vs. Scalping

Author: Iskander Ziyanurov

Not long ago, trading in financial markets was considered the privilege of the elite, the big players. But times are changing: today, almost anyone can try his or her hand at, for example, speculating on currency fluctuations, and it is not necessary to have impressive capital.

Successful trading, as a rule, is based on various methods that optimize the work of the trader and help him to achieve the best result. In other words, there are all kinds of strategies you can use to conduct a comprehensive analysis and make balanced decisions. Some of the most popular trading methods (or styles) today are swing trading and scalping.

In this article, you will learn what such trading styles as swing trading and scalping are, what advantages and disadvantages they have, and which style to choose in order to achieve the best results in trading.

What is Swing Trading?

So, what is swing trading? In the most general terms, it is a style of trading in the financial markets that focuses on identifying the cyclical nature of price movements. This approach assumes that each trend consists of several up and down phases. Swing traders try to take advantage of these short-term impulses and corrections. Traders working with this strategy tend to keep positions open for several days to take advantage of large market trends.

Most swing traders follow the direction of the market trend. Their actions are dynamic. They may open long positions during an uptrend and short positions when a downtrend begins. When one bets on market trends, they often open a position and hold it for days or weeks (even months), depending on the opportunity presented by the trend. Like scalpers, swing traders capitalize on market volatility because it creates opportunities for them.

In swing trading, there is no need to make decisions in real-time or quickly. That's why this method is popular with part-time traders; they can use their lunch hour to check the markets, for example. But an effective swing trading strategy requires patience, as the timing of holding an asset can fluctuate considerably. Therefore, it is not the best choice for people who are nervous in stressful situations.

One of the best indicators for swing trading is the Fibonacci Retracement Levels indicator. Traders use this to identify potential triggers for breakouts in either direction. They usually track reversals when the price consolidates after breaking a support or resistance level.

What is Scalping?

Scalping is considered the most profitable but, at the same time, the most challenging trading strategy in any type of market. Alternatively, scalping is also known as high-frequency intraday trading because a large number of deals and the high speed of making them allow a scalper to earn on almost any market movement due to small but frequent profits.

Traders who use scalping tactics, often called scalpers, profit by buying at low prices and selling at high prices. It's as simple as that. They make money on even the smallest divergence in the current price of an asset, so even the slightest fluctuations in the price of financial assets are seen as opportunities to make a profit.

However, the downside of such an "easy" earning process is potentially minimal profit from a single trade. That is why scalpers often spend 24 hours at the monitor: many small transactions are made in parallel with very short holding periods (often in just a few minutes) to make more or less a weighty profit.

Scalpers act quickly and constantly watch the intraday trading indicators. They take short positions in one trade and long positions in the next, looking for frequent, albeit tiny, chances. Basically, scalpers make money using the difference in the buy and sell price. These windows of opportunity are more common than massive price changes since even relatively calm markets are subject to regular fluctuations.

Most traders using the scalping technique use charts with a time frame of one minute. Scalpers benefit from charts that show even the smallest price "pips."

Swing Trading and Scalping: Strengths and Weaknesses

Swing Trading vs. Scalping: a comparison of two excellent trading strategies, which are very popular among traders.

Now that you know what each style of trading is, let's take a look at their main strengths and weaknesses.

Strengths of Swing Trading

Many traders prefer this style because of the following advantages.

1. Higher profit probability

Maintaining an open position for days or weeks can lead to higher profits than trading the same instrument several times a day.

2. More comfort in the trading process

Since swing trading is rarely a full-time job, the likelihood of overwork due to stress is much lower. There is time to do other things and keep your nerves healthy and energy up.

3. Easy to use

Swing trading can be done via a simple computer or smartphone with a broker terminal installed. There are no high requirements for connection speed and advanced technological solutions.

Weaknesses of Swing Trading

Now consider the main disadvantages of this method of trading.

1. Risk of loss

As with any trading style, swing trading can also lead to significant losses. Because swing traders hold their positions longer than "intraday" traders, they also run the risk of greater losses. The risk of loss is especially increased by holding a position every other day.

2. Comparatively lower profitability

Swing traders rarely enter at the best prices. Checking the chart 1-2 times a day, they are content with what the market will offer when opening a position.

3. Time-consuming

Increased waiting time for a signal to enter a position. While scalpers get signals every so often, swing traders can wait for a set-up for days.

Strengths of Scalping

The scalping strategy also has a number of interesting advantages.

1. Potentially high profit

Multiple turnovers of working capital give the potential to increase the deposit.

2. Clear model

Relatively easy to make a trading plan because scalper formations are not considered complicated.

3. Many opportunities to enter a trade

Many trading signals during the day, even in the same market.

Weaknesses of Scalping

Just like swing trading, scalping has some disadvantages.

1. Grueling style of trading

Sitting for hours in front of monitors and concentrating on the course of trading to catch the right moment to enter the deal is not easy. That's why scalpers usually trade particular periods — for example, 1-2 hours after the opening of each session.

2. Lost profit opportunities

Focusing on small periods, you can miss the influence of higher time frames.

3. High costs

High costs are caused by frequent trades. Often the profit from trading is comparable to the size of the paid commission. That is why the percentage of successful trades in scalper strategies should be considered.

Which Trading Style Is Better For Me?

The main advantage of swing trading over scalping is less trading volume, less time spent, fewer trades, and, consequently, lower trading costs. Also, a swing trader does not need to constantly monitor his positions closely because they can be formed within a few days or weeks.

Even though swing trading is, as a rule, fewer trades, they allow for a higher net profit. Consequently, swing traders can make as much money as scalpers by engaging in less risky and time-consuming activities. At the same time, scalpers are protected from significant losses associated with a single trade.

Scalping involves a swift pace and, consequently, more emotional stress and high concentration, so it is essential to correctly assess your strength, leaning towards this strategy. By comparison, swing trading allows traders to wait many days before taking any action but gives traders more freedom. It is worth carefully studying and trying both trading strategies before settling on one.

It is important to remember that there is no reliable strategy for swing trading or scalping. It is not enough to study a bunch of theories, the experience of other traders, types of analysis, and other scientific tools. Practical experience is the most essential part. Finding your own trading technique that consistently produces positive results is the key to becoming a successful trader.

Understanding your stress tolerance, pace, available time, and schedule flexibility will reduce your risks when implementing these strategies.

Conclusion

Developing a financial trading strategy that fits your financial goals and style is far from easy. To find out what really works and what doesn't, you need to follow and monitor each trading strategy without violating established principles when making decisions.

It is also worth noting that it is unnecessary to always follow the same strategies. You can adjust and adapt your methods to different markets with enough data and trading records. In other words, your trading strategies should constantly evolve as your trading experience improves.